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Friday, August 26, 2011

Gaddafi's Fellow Travelers
James S. Henry

(An earlier version of this appeared today as a Forbes column.)

GaddafiCartoon I recall one cold wintry Saturday evening about three years ago in Vermont,  and a dinner conversation among a small group of former business colleagues, including  HBS Professor Michael E. Porter, the eminent competitive strategist.

He’d just returned from Tripoli, where he’d been working on what he told us was a  “strategy project” for the Gaddafi regime with a raft of consultants from Monitor Group, the Cambridge-based consulting firm that he’d helped to found in the early 1980s.  

For about thirty minutes or so he shared with us how excited they all were to be working to reform the Libyan economy, and how Colonel Gaddafi and his sons now really seemed to “get it.”

Clearly Prof. Porter felt this was all pretty cool. When asPorterked about the issue of democracy and the rule of law, he rather quickly brushed aside such concerns, suggesting that they were sort of beside the point – after all, as the case of China supposedly demonstrated, all those annoying traditional liberal values sometimes just need to get out of the way of progress.

At the end of all this, there was a brief silence. I suspect that most of those at the table were slightly discomforted by Prof. Porter’s blunt, hard-nosed neoliberal analysis, and certainly by his apparent intoxication with the infamous Libyan dictator. But he was,  after all,  an eminent Harvard professor. And unlike us, he’d not only been to the country, but had met its most senior leaders personally.

Finally, however, my friend Roger Kline, a wise old McKinsey partner, broke the silence with a simple, direct, slightly impolitic question,  which would be answered only by the silence that it provoked from Professor Porter:  “Doesn’t it ever bother you at all, Michael, to be working for a terrorist?

***

As the spirit of doom hovers over the last remnants of Muammar Gaddafi’s 42-year-long dictatorship, and most Libyans are celebrating his departure with sheer delight, there is much less joy in a handful of top-tier academic and professional-class households in Cambridge, Princeton, Georgetown, Baltimore,  East Lansing, and London.Porter'sNeoliberalSoup

For Mighty Muammar has indeed struck out -- contrary to the hopes  and  expectations of some of our very best and brightest experts on  “competitive country strategy," “global democratic governance," "the idea that is America,” and “soft power.”

After all, from their perspective, whatever Gaddafi's flaws, his blood-stained but deep-pocketed regime was certainly not like that of Kim Jong Il.

Unlike Kim, Gaddafi had been willing to pay quite handsomely to PinochetDemocracyBlood hear them spout off about their pet aerie-faerie neoliberal theories of political and economic development.

 
Meanwhile, Gaddifi's  government also ordered up an expensive grab-bag of university grants, endowments, special education for Libyan police and diplomats, ginned-up degrees for his dim-witted family members, lots of slick lobbying and lawyering, plus a large number of custom press portraits by leading Western academics gurus none of whom ever bothered to disclose the fact that they were all on Brother Leader's  payroll.

This sordid tale first began to trickle out about two years ago from the Libyan opposition,  but it really picked up steam after the Revolution began in February 2011.  The interested reader can look here, here, here, here, and here for  the gory details.

But right now, just as the Gaddafis are about to take their rightful place in history’s waste bin, it is worth recalling the highlights  for several reasons.Hanfstaengl

First, we’d like to make sure that all of the leading academic   collaborateurs who helped to legitimate Gaddafi's abattoir receive their due: the  very first installment of the “Milton Friedman/ "Putzi" Hanfstaengl Iron Cross Award. Friedman_pinochet

Second, we'd like to require all these collaborateurs to donate the millions of dollars of blood money and the  thousands of frequent flier miles they accumulated as unregistered foreign agents for Gaddafi’s regime to Libya’s teeming hospitals and orphanages.

Together, these two simple steps might help to insure that this kind of totally uncool dictatorship rebranding is brought to a screeching halt.

REBRANDING GADDAFI

Images This tale really began in 2003, when the Gaddafi regime, seeking to end an annoying economic  boycott,  gave its solemn word  to swear off terrorism forever, cease dabbling in nuclear technology, pay compensation for the 1988 Pan Am 103/Lockerbie bombing, and "accept responsibility for the actions of its officials,” whatever that meant.

Not surprisingly, given Gaddafi's horrific track record, most ordinary Westerners, not to mention the hard-pressed LBUSHBLAIRBERLUSCONIibyan opposition, were deeply skeptical.

But Western leaders and policy experts were curiously much more receptive to Libya’s extraordinary effort to upgrade its image from “terror camp” to “the West’s best new pragmatic partner in the Middle East."

Indeed, it turned out to be a very fertile time for this kind of rebranding effort. First, even though Libya’s U-turn had largely been  motivated by economic self-interest, George W. Bush, Tony Blair, and Silvio Berlusconi welcomed it as a badly-needed victory in the “war on terror.”  Berlusconi and Blair even flew directly to Tripoli to welcome the “reborn” Gaddafi back into the community of nations.

BERLUSCONIGADDAFI Nor, in the US, was the welcome committee just limited to Republicans. In July  2008, Democrats Carl Levin and (now Vice President) Joe Biden played a key role in guiding S.1330 through the US Senate.

This  scurrilous bill, signed into law by President Bush, controversially granted Gaddafi complete legal immunity for the Lockerbie bombing, so long as he paid a (rather paltry) agreed-upon sum to the victims’ families.

Second, Libya’s U-turn opened the door to a whole bevy of Holy-Water merchants and academic medicine men. These instant Libyan "experts" were eager to offer Gaddafi not only absolution, but also their very latest pet theories about everything from “competitive clusters" and "strong democracy" to “the Third Way.”

They were also eager to see test such theories in Gaddafi’s living laboratory -- especially if the dictator was willing to subsidize the  clinical trials. Not since Boris Yeltsin, General Suharto, and General Pinochet have neoliberal academics had such a golden opportunity to test their theories on real live human subjects at country scale.  BLAIRGADDAFI

Third, to a large extent mainly for PR purposes,  Western experts also made much of their opportunity to "dialogue" in person with real live Libyans. Well, perhaps not so much with the nascent opposition, which was mainly abroad, in hiding,  in jail, or dead.

 Of course, according to Gaddafi & Sons, confirmed by US intelligence officials like John Negroponte – who got much of his info about Libya from his brother Nicholas, who got it from Gaddafi & Sons (see below) – the Libyan opposition consisted of radical "al Qaeda” sympathizers or the members of “dissident tribes” in Libya’s supposedly “very tribal” society, anyway.

Their received image of Libya, seen through Gaddafi-colored lens, was curiously similar to the self-image that South Africa’s apartheid regime used to project – a deeply “tribal” society that required strong-armed rule to preserve it  from the radical horde at the gates.

75px-Snake-oil In any case,  Western experts were generally quite happy to take the Gaddafis’ word -- and his moolah --  for all this, and to participate in  one-sided “dialogues” with Brother Leader  himself whenever he was able to spare the time.

This delighted Brother Leader. No doubt this was partly because of  3076876128_8511664b49_s his  deep intellectual curiousity about the very latest  economic and political theories. But, more practically, it also meant that prominent Western expert after expert had to fly  thousands of miles to Tripoli and back just to help his regime flaunt its wares on Libyan State TV and lend him unprecedented respectability.

Ultimately, you see, Gaddafi had  all these neoliberal academics pegged to the tee.

He understood from the start that many were frustrated by their powerlessness in (more) democratic Western societies.  Their secret wet dream is the absolute dictator who takes them seriously, and able and willing to test their theories on command, without the need for messy democratic processes.

Indeed, Gaddafi's personal power n Libya was so complete that he never even bothered to give himself a formal title other than "Colonel."

THE CARAVAN

Toadies_-_Mister_Love_300px From 2004 on, therefore, Tripoli became a kind of alternative Mecca for a veritable “Who’s Who” of leading Western intelligentsia. Among the key interlocutors were Professor Porter; Cambridge  University/LSE’s   “Baron” Anthony Giddens and George Joffe; LSE’s Director Sir Howard Davies (now resigned), and Professor David Held,  its leading expert on “globalization;”  and Monitor Group’s Rajeev Singh Molares (now at Alcatel), Mark Fuller (recently resigned as its Chair), and Bruce J. Allyn (formerly the head of Monitor’s Moscow office).

75px-Francis_Fukuyama Others who tagged along for the camel ride included Ann-Marie 75px-Lewis-pre Slaughter, Dean of Princeton’s Woodrow Wilson School; Princeton Professors Bernard Lewis and Andrew Moravcsik; the insidious neo-con Richard Perle (2 visits); MIT Professor Emeritus Nicholas Negroponte (several visits), brother of  US DNI John Negroponte, and the former head of the MIT Media Labs,  who was very eager to get Libyan funding for his ill-fated pet “One 75px-Voa_chinese_Joseph_Nye_03Aug10 Laptop Per Child” project; a flurry of other Harvard profs, including the Kennedy School’s Robert Putnam, Joseph Nye, and Marshall Ganz, an organizer-guru who became involved in another tidy little dictatorship, Syria; and Johns Hopkins' "end of history" champion Francis Fukuyama, who made history himself by pulling down a record $80,000 for a single audience with Brother Leader.

Perle  Nor were journalists entirely immune from the attractions of the 75x75 Libyan honeypot. Here,  the Monitor ringmasters also went for high-profile celebrities, including Al Jazeera's David Frost, who collected $91,429 for a single visit.  They also nearly  recruited several others before the project got terminated.  One Monitor project memo reports, for example,  that:

“Monitor approached (Fareed) Zakaria who said that he is very interested in travelling to Libya in order to meet with the Leader….Monitor also approached ( the New York Times’ Thomas) Friedman who said that he was interested in travelling to Libya at some point in the future.

Images-4 Collectively this respectability caravan made dozens of such Gaddafi-tour site visits, logging tens of thousands of First Class miles and receiving millions of dollars in fees to commune about the “New Libya" – all the while helping to launder the regime’s  blood-stained image.

This activity seems to have gone far beyond simply helping Libya to restructure its economy and political system along more open,  competitive lines. Indeed, it is now clear that the regime probably never seriously intended any meaningful reforms, but was mainly trying to curry influence and favors.

The experts’ punch list included such dubious activities as ghost-writing Saif Gaddafi’s PhD thesis; helping to design a “national security agency” for Libya (!), quite probably with inputs from folks like the Negropontes and Richard Dearlove, the Monitor “senior advisor” who ran the UK’s MI6 from 1999 to 2004; offering to ghost-write a puffed-up version of Brother Leader’s collected works;  and, all along, orchestrating a flurry of favorable press coverage in influential papers like the Washingon Post, the New York Times, the International Herald, and the Guardian.

All of this was done without without ever bothering (until this Spring, in the case of Monitor Company) to register as what many of these high-toned folks truly turned out to be:  foreign agents of the Government of Libya.

BETTER SAIF THAN SORRY

There are many glaring examples of outright shilling for the Gaddafis by these brown-nosing academic and consulting mercenaries, but a handful captures the essential odor.

Images-7 One good example was LSE Professor Emeritus/ Blair confidant/ Baron Anthony Gidden’s bold March 2007 speculation in the UK’s Guardian newspaper that Colonel Gaddafi’s Libya might soon turn out to be “the Norway of North Africa.” The piece mentioned Lord Giddens’ impressive academic credentials, but  it neglected to mention the fact that he had received $67,000 in fees from Libya, plus First Class round-trip travel expenses for at least two hajjs to visit with Brother Leader and his staff in Tripoli.

Another example is Rutgers Professor Emeritus Ben Barber’s even more wildly enthusiastic August 2007 Washington Post endorsement of the “surprisingly flexible and pragmatic” Gaddafi andImages-5 his “gifted son Saif.” Of course Saif is much more familiar to the rest of us now for his blood-curdling “rivers of blood” speech on February 20, 2011, which contributed mightily to the subsequent polarization and bloodshed.

Images-6 Professor Barber’s piece reminded his readers that he was a  best-selling author and a Distinguished Senior Fellow at the think-tank Demos. But it neglected to mention the fact that he’d also made multiple all-expense-paid trips to Tripoli, for which he’d been paid at least $100,000 in fees by the Libyan Government.

A third example is HBS Professor Michael E. Porter’s February 23 2007 Business Week interview, in which he reported that he had “taken on” a consulting project in Libya,  as if this were some kind of beneficent act. Gaddafi,  he maintained with a straight face, MarkFuller  wasn’t really a dictator after all: “In a sense, decision-making is widely distributed in (Libya). People [consider Libya] a dictatorship, but it really doesn't work that way. That is another reason for optimism.” (Emphasis added).

75px-Monitor.svg Prof. Porter neglected to mention the fact that he and FullerJoe1 Monitor Group, the Cambridge consulting firm that he, plus HBS grads Joe Fuller and Mark Fuller, had founded in the early 1980s, were not only earning several million dollars for their Libyan strategy work, but were also up to their proverbial eyeballs in a second multi-million dollar PR project to bolster Gaddafi’s image.

THE IMPACT

All this salacious material is interesting.  But did it really have any harmful impacts on Libya?  Or is all this merely frivolous second-guessing?

The answer is that this kind of orchestrated air-brushing of the Gaddafi regime by leading Western consultants and academics clearly was not only enormously harmful to the interests of most Libyans, but also that these negative impacts were entirely foreseeable – and, indeed, were anticipated by many critics who had the same intuitive reaction as Roger Kline (see above.)

✔ The academic white-washing helped to conceal the fact that the Gaddafi regime was enormously unpopular with its own people – that the opposition was broad based, that high-level corruption was rife, and that  the “tribal”/al Qaeda paradigm of the Libyan opposition was simplistic and dangerously misleading, not to mention self-serving for the Gaddafi clan.

Academic air-brushing also contributed to the misleading view that “reforming Libya" was mainly just a technocratic exercise for the insider-elite and their Western advisors,  to which constitutive matters like elections, rights, the rule of law, and genuine popular representation could take a back seat.

The bevy of  big-name Western intellectuals and consultants who courted the Gaddafis not only inflated their egos even larger than they already were, but also encouraged them to believe they could easily  buy influence, as well as arms, in the West -- and delay fundamental political reforms.

In short, the white-washing and the kid glove treatment of the Gaddafi regime by leading Western academics may well have discouraged that regime from pursuing deeper political reforms much earlier, and from negotiating in good faith once conflict increased.Fellowtraveler

In other words, it probably cost lives.  

 If and when the Gaddafi clan is captured and put on trial, either in  Libya or before the ICC, we hope that these courts seize the opportunity to examine the conduct and responsibilty of these  neoliberal fellow travelers of dictatorship very closely.     

***

So, in the waning hours of the Gaddafi regime,  it is important to recall that Brother Leader and his band of thugs did not simply become a menace to Libya’s people and the world on their own.

Nor was his particular brand of madness simply due to the “usual suspects:” anti-Western radicalism, liberation ideology,  Gaddafi's own imperialistic ambitions in Africa, his idiosyncratic version of political Islam, or even the fact that he spent far too much time spent frolicking in the desert sun with Ukrainian nurses.

No – while Gaddafi’s buddies in Venezuela still portray  him as a stalwart opponent of Western imperialism,  the fact is that in recent years he actually continued to increase his influence in the West only with the really quite extraordinary assistance of prominent, high-priced, incredibly smart, but ultimately quite gullible Western “friends.”

(c) JSH 2011

 

August 26, 2011 at 04:47 PM | Permalink | Comments (0)

Friday, December 15, 2006

Blood Diamonds
Part 1: The Empire Strikes Back!
by James S. Henry

"...(O)ne of the great dramas of Africa: extremely rich areas are reduced to theaters of misery...."

-- Rafael Marques, Angolan journalist (July 2006)

"For each $9 of rough diamonds sold abroad, our customers, after cutting them, collect something like $56..." 

-- Sandra Vasconcelos, Endiama (2005)

"We found the Kalahari clean. For years and years the Bushman have lived off the land....thousands of years...We did not buy the Kalahari. God gave it to us. He did not loan it to us. He gave it to us. Forever. I do not speak in anger, because I am not angry. But I want the freedom that we once had."

-- Bushman, Last Voice of an Ancient Tongue, Ulwazi Radio, 1997 

 


Wdclogo_2 The global diamond industry, led by giants like De Beers, RTZBHP10m_1 Bililton, and Alrosa  Co Ltd., Russia's state-owned diamond company,  a handful of aggressive independents like Israel's Lev LevievBeny Steinmetz's BSG Group, and Daniel Gertier's DGI, a hundred other key "diamantaires" in New York,  Ramat-Gan, Antwerp,  Dubai, Mumbai, and Hong Kong,  and leading "diamond industry banks" like ABN-AMRO, is not exactly renowned for its abiding concern about the welfare of the millions of diamond miners, cutters,  polishers, and their families who live in developing countries.

But the industry -- whose top five corporate members still control more than 80 percent of the 160 million carets that are produced and sold each year into the $70 billlion  world-wide retail diamond jewelry market -- certainly does have an undeniable long-standing concern for its own product's image.

PERENNIAL FEARS

Indeed, for decades, observers of the diamond industry have warned that it was teetering on the brink of a price collapse, because the industry's prosperity has been based on a combination of artificial demand and equally-artificial -- but often more unstable -- control over supply.

Most of the doomsayers have always predicted that the inevitable downfall, when itGlitter_cover came, would arrive from the supply side, in the form of some major new diamond find that produced a flood of raw diamonds onto the global market.

The precise culprits, in turn, were expected to be artificial diamonds (in the 1960s and 1970s), "an avalanche of Australian diamonds" (in the 1980s,) and Russian diamonds (in the 1990s.)

This supply-side pessimism has lately been muted, given the failure of the earlier predictions and the fact that raw diamond prices -- though not, buyers beware,  retail diamond resale prices!! --  have recently increased at a hefty 10-12 percent per year.  There is also some evidence that really big "kimberlite mines" are becoming harder and harder to find.

However, there are still an awful lot of raw diamonds out there waiting to found, and one does still hear warnings about the long-overpredicted Malthusian glut, now from new sources like deep mines in Angola, Namibia's offshore fields, Gabon, Zambia, and the Canadian Northwest.

THE REAL THREAT?

Meanwhile, the other key threat to the industry's artificial price structure -- where_787698_diamonds300 retail prices are at least 7 to 10 times the cost of raw diamonds -- comes from the demand side. This is the concern that diamonds may lose the patina of glamour, rarity and respectability that the industry has carefully cultivated since the 1940s.

It is therefore not surprising that the industry has been deeply disturbed by the December 8, 2006, release of Blood Diamond, a block-buster Hollywood film that stars Leonard DiCaprio, Jennifer Connelly, and Djinmon Hounsou.

0521686369 While extraordinarily violent and a bit too long, the film is entertaining, mildly informative, and far from "foolish" -- the sniff that it received from one snide NYT reviewer -- who clearly knew nothing about the subject matter, other than, perhaps, the fact that the Times' own Fortunoff- and Tiffany-laden ad department didn't care for  the film. 

Indeed,  this film does provide the most critical big-screen view to date of the diamond industry's sordid global track record, not only in Africa, but also in Brazil, India, Russia, and, indeed, Canada and Australia, where diamonds have often been used to finance civil wars, corruption, and environmental degradation, and  indigenous peoples often been pushed aside to make room for the industry's priorities.

Surely the film is a small offset to decades of the diamond cartel's shameless exploitation of Hollywood films, leading ladies like Marilyn Monroe, Elisabeth Taylor, and Lauren Bacall, and scores of supermodels, rock stars, and impresarios.

INDUSTRY WHITE WASH
 

Chap1adj240Dismayed at the potential negative impact of the film ever since the industry first learned about Blood Diamond in late 2005, it is reportedly spending at least an extra $15 million on a  PR campaign that responds to the film  -- in addition to the $200 million per year that the World Diamond Council already spends on regular marketing.

For example, if you Google "blood diamonds," for example, you'll see that the industry has purchased top billing for its own version of the "facts" regarding this film. Always eager for a new marketing angle, some diamond merchants have also seized the opportunity to pitch their own product lines as "conflict diamond - free."

DEF JAM'S  BLACK WASH

This shameless PR campaign has also included a "black wash" effort by the multimillionaire hip hop impresario Russell Simmons, whoRussell_simmons_100x100 launched his own diamond jewelry line by way of the Simmons Jewelry Co. in 2004,  in partnershp with long-time New York diamond dealer M. Fabrikant & Sons.

Simmonslogo Simmons, who admits to "making a lot of money by selling diamonds," rushed back to New York on December 6 from a whirlwind nine-day private jet tour of diamond mines in South Africa and Botswana -- but, admittedly,  not in conflict-ridden Sierre Leone, Angola, the Congo, the Ivory Coast or Chad.

Simmons was originally scheduled to travel with one of his latest flames, the  27-year old Czech supermodel and Fortunoff promoter, Petra Nemcova. But Petra reportedly preferred to stay home and accept a huge diamond engagement ring of her own from British singer/soldier James Blunt, whose 2005 pop hit "You're Beautiful" was recently nominated the "fourth most annoying thing in Britain," next to cold-callers, queue-jumpers, and caravans.

The timing of Simmons' trip, which he filmed for UUtube, just happened to coincide with the December 8 release of the Warner Brothers feature.

Farrakha Upon his return, Simmons held a press conference, accompanied by his estranged wife Kimora Lee Simmons and Dr. Benjamin  F. Chavis Mohammed, a former civil rights activitist and fellow investor in the jewelry company who is perhaps best remembered for being fired as NAACP Director in 1994  after settling a costly sexual harassment suit, and for joining the Rev. Louis Farrakhan's Nation of islam. Simmons' astounding conclusion from his wonder-tour: "Bling isn't so bad."

Whatever the credibility of Simmons and his fellow instant experts, it was  evidently not enough to save M. Fabricant & Sons,  which filed for Chapter 11 in November.

THE GODS MUST (STILL) BE CRAZY

Simmons managed to tour a few major diamond mines on his African safari, but apparently heKalaharibush lacked time to examine the contentious land dispute between the Kalahari  San Bushmen, the members of one of Africa's oldest indigenous groups,  and the Botswana Government -- with the diamond industry's influence lurking right offstage.

In the 1990s, after diamond deposits were reportedly discovered on the Bushmen's traditional lands, the Botwana Government -- which owns 15 percent of De Beers, is a 50-50 partner with De Beers in the Debswana diamond venture, the largest diamond producer in Africa, and derives half its revenue from diamond mining -- has pressured the Bushmen to leave their tribal lands.

The methods used were not subtle. To force the Bushmen into resettlement camps outside the Reserve, the Botswana Government closed schools and clinics, cut off water supplies, and subjected members of the group to threats, beatings, and other forms of intimidation for hunting on their own land -- all of it ordained by F.G. Mogae, Botswana's President,  who declared in February 2005 that he 'could not allow the Bushmen to return to the Kalahari." Those who have been resettled have been living in destitution, without jobs and little to do except drink. (See a recent BBC video on the subject.) 

WeareveryhappyThankfully, on December 13, 2006, Botswana's High Court ruled that in 2002, more than 1000 Bushmen had been illegally evicted by the Botswana Government from the Central Kalahari Game Reserve, where they'd lived for 30,000 years.

The Botswana Attorney General has already attempted to attached strict conditions to the ruling, so this struggle is far from over. But at least the first prolonged legal battle has been won -- thanks to the determination of the Bushmen, public-spirited lawyers like Gordon Bennett, their legal counsel, courageous crusaders like Professor Kenneth Good, and  NGOs like Survival International, which has supported the legal battle.

In the wake of this decision, as usual,  the global diamond industry, led by De Beers, has denied that any responsibility whatsoever for the displacement of the Bushmen.

Images_6However, the fact is that De Beers and other companies has been prospecting actively in the Kalahari Reserve, especially around the Bushman community of Gope (see this video),  where De Beers has falsely claimed that no Bushmen were living when it started mining. It has actively opposed recognizing the rights of indigeneous peoples in Africa. In 2002, at the time of the eviction, Debswana's Managing Director -- appointed by De Beers -- commented that "The government was justified in removing the Basarwa (Bushmen)….’.

De Beers' behavior in Botswana has so outraged activists that they have joinedBoycottdebeerslogo together with prominent actors like Julie Christie and several Nemcova-like supermodels who used to appear in De Beers ads, in an appeal for people to boycott the now-UK-based giant -- which has lately been trying to move downstream into retail diamonds.

However, De Beers is far from alone in this effort.  Indeed, as has often been the case with  "conflict diamonds," less well-known foreign companies have been permitted to do much of the nastier pioneering. 

In Botswana's case, these have included Vancouver-based Motapa Diamonds and Isle of Jersey-based Petra Diamonds Ltd. both of which have have obtained licenses to explore and develop milliions of acres, including CKGR lands. Petra is not unfamiliar with "conflict diamonds;" it is perhaps best known for a failed 2000 attempt to invest in a $1 billion diamond project in the war-torn DR Congo, in which Zimbabwe's corrupt dicator, Robert Mugabe, reportedly held a 40 percent interest.

In the case of Botswana, in September 2005 Petra acquired the country's largest single prospecting license -- covering 30,000 square miles, nearly the size of Austria -- by purchasing Kalahari Diamonds Ltd, a company that was 20 percent owned by BHP Billiton and 10 percent by the World Bank/IFC -- which apparently saw the sponsorship of CKGR mining as somehow consistent with its own financial imperatives, if not its developmental mission. (!!!). Petra has also licensed proprietary explorations technology from BHP Billiton, and offered it development rights, a front-runner for the Australian giant.

Blood_1 Meanwhile, at least 29 of the 239 Bushmen who filed the lawsuit have perished while living in settlement camps, waiting for the case to be decided, and many others are impoverished. 

Perhaps the diamond industry's $15 million might be better spent simply helping these Bushmen return to their homes -- and also settling up with  the Nama people in South Africa, the Intuit and Kree peoples in Canada, and the aborigines in Australia.

FAR CRY

Meanwhile, as we'll examine in Part II, despite the "Kimberly Process" that was adopted by many -- but not all -- key diamond producers in 2003, the fact is that diamonds continue to pour out of conflict zones like the Congo, Ghana, and the Ivory Coast, providing the revenues that finance continuing bloodshed.

The industry's vaunted estimate that they account for just "1 percent" of total production is based on thin air -- there are so many loopholes in the current transnational supply chain that there is just no way of knowing. Of course, given the scale of the global industry, and the poverty of the countries involved, even a tiny percent of the global market can make a huge difference on the ground.

Furthermore, in cases like Angola, the Kimberly Process has provided an excuse for corrupt governments to team up with private security firms and diamond traders to crack down on independent alluvial miners.

Finally, the diamond industry still has much work to do on other fronts --  pollution, deforestation, and, most important, the task of creating a fairer division of the spoils, in an industry where the overwhelming share of value-added is still captured by just a handful of First World countries. 

The objective here is not to kill the golden goose. In principal, the diamond industry should be able to reduce world inequality and poverty, since almost all retail buyers are relatively-affluent people in rich countries, while more than 80 percent of all retail diamonds come from poor countries.

But beyond eliminating traffic in "blood diamonds," however,  we should also demand that this industry starts to redress its even more fundamental misbehaviors.

                                                           ***

(c) SubmergingMarkets,2006


December 15, 2006 at 12:06 PM | Permalink | Comments (0) | TrackBack

Saturday, August 19, 2006

BEYOND DEBT RELIEF
The Next Stage In the Fight for Global Social Justice
James S. Henry

Images12“Third World debt relief”  has become a little like Boston’s “Big Dig,” the Middle East “peace process,” and the “ultimate cure for cancer” -- long anticipated, endlessly discussed, and perpetually, it seems, just around the corner.Live8angie2

At the end of the day, after decades of effort, the fact is that very little Third World debt relief has actually been achieved.

There is also mounting evidence that even the paltry amount of debt relief that has been achieved has not done very much good. 

This is partly  because debt relief tends t19991101bonoo reinforce questionable policies and bad habits that get developing countries into hock in the first place.  It is also because debt relief has reinforced the prerogatives of IMF/World Bank econo-crats, whose policies have often been incredibly detrimental. 

Finally, debt relief is also often a very poor substitute for other forms of aid and development finance. 

Furthermore, most of the costs of debt relief have been born by ordinary First and Third World taxpayers, while the global banks and Third World elites that have profited enormously from all the lousy projects, capital flight, and corruption that were financed by the debt have escaped scot-free.

This is not to suggest that the debt relief campaign has been utterly pointless.

It has provided a bully pulpit for scores of entertainers, politicians, economists, religious leaders, and NGOs. It  has occasionally reminded us of the persistent problems of global poverty and inequality.

I180pxgeldofpopet has also provided an excuse for some pretty good free concerts.

From the standpoint of actually providing enough increased aid to improve living conditions in debt-ridden countries, however, debt relief has been a disappointment. In the immortal words of Bono himself, "We still haven't found what we're looking for."

Fortunately, there is an alternative strategy that would have much greater impact. But this strategy would require a more combative stance on the part of anti-debt activists, and it would almost certainly not generate nearly as many convivial press conferences or photo opportunities.

“Fact Check, Please”

Surprisingly, there have been few efforts to take stock of debt relief efforts, to see whether this game has really been worth the candle.

It is high time that we took a closer look. After all, it is now more than 30 years since Zaire’s bilateral debts were rescheduled by the Paris Club in 1976, 27 years since UNCTAD’s $6 billion write-off for 45 developing countries in 1977-79, 23 years since the climax of the so-called “Third World debt crisis” in 1983,  and more than a decade since the inauguration of the IMF/World Bank’s debt relief program for “Heavily-Indebted Poor Countries” (“HIPCs”) in 1996. 

On the debt relief campaign side, it is two decades since the formation of the UK Debt Crisis Network, eight years since the 70,000-strong “Drop the Debt” demos at G-8’s May 1998 meetings in Birmingham, and over a year since the “Live-8/End Poverty Now” fiesta at Gleneagles.

Along the way, there have been Bradley Plans, Mitterand Plans, Lawson Plans, Mizakawa Plans, Sachs Plans, Evian Plans, and more than 200 debt rescheduling by the Paris Club on increasingly generous terms -- Toronto terms (’88-‘91), London (‘91-‘94) terms, Naples terms (’95-96), Lyon terms (’96-99), and Cologne terms (’99-).

Most recently, in the wake of “Live 8,” the G-8, the World Bank, and the IMF launched their “Multilateral Debt Relief Initiative” (“MDRI”) with a great deal of fanfare, declaring that it will be worth at least “$40 to $50 billion” to the two score  countries that are eligible. 












Realities

Despite all this activity, the fact is that developing country debt is now greater than ever before, and is still increasing in real terms. For most countries,  the debt burden – as measured by  the ratio of debt service to national income – is even higher than in the early 1980s, at the peak of the so-called “Third World debt crisis.” 

By our estimates,  as of 2006, the nominal stock of all developing country foreign debt outstanding was $3.24 trillion. This debt generated about $550 billion of debt service payment each year for First World  banks, bondholders, and multilateral institutions.

That includes $41 billion a year that was paid by the world’s 60  poorest countries, whose per capita incomes are all below $825 a year. Even after twenty-five years of “debt relief,” this annual bill for debt service still almost entirely offsets the $40-$45 billion of foreign aid that these countries receive each year. Their debt burden also remains higher, relative to national income, than it was the early 1980s.   

As discussed below, most heavy debtors also have very little to show for all this debt.  So these payments are, in effect,  a “shark fee” paid to First World creditors  for funds that have long since vanished into the ether – and a not a few offshore private bank accounts.

Present Value

Since most existing Third World debt was contracted at higher interest rates than now prevail, the “present value” of the debt -- a better measure of its true economic cost -- is actually even higher: nearly $3.7 trillion. 

China and India alone now account for about $.5 trillion of this developing country “PV debt.”  Both countries  were relatively careful about foreign borrowing, and they also largely ignored IMF/World Bank policy advice, so their debt burdens are small, relative to national income. But in absolute terms, their debts are large, simply because they are so huge.  They can easily afford it --  thanks in part to their non-neoliberal economic strategies, both countries now have high-growth economies and large stockpiles of reserves.

Of the other $3.2 trillion of “PV debt,” however, $2.6 trillion is owed by 26 low-income and 49 middle-income countries that pursued “high debt” growth strategies. 

These heavily-indebted countries have about 1.6 billion residents – over a quarter of the world’s population, a share that has been steadily increasing.

After decades of debt relief, their “PV debt/ national income ratios” are all in the relatively-high 60-90 percent range. Debt service consumes 4 to 9 percent of national income each year,  more than they spend on education or health, and far more than they receive in foreign aid.   
III. Where’s the “Relief”?

These numbers beg a question -- what have all the professional debt relievers at the World Bank, the IMF, and the Paris Club,  not to mention debt relief activists, been up to all these years?  How much debt relief have they actually secured, who received it, and how helpful has it been?

To begin with, it is not easy to measure “debt relief.” The definitions of debt relief  employed by debtor countries, commercial creditors, bilateral creditors, and multilateral organizations like the IMF/World Bank, the OECD, the Paris Club, and the Bank for International Settlements vary significantly, and the reported data is subject to huge discrepancies.  This helps to account for the fact that only a handful of systematic attempts to measure debt relief have ever been attempted.   

As usual, however, some things can be said. This article provides the most comprehensive estimate of debt relief to date, based on a careful review of these data sources and our own independent analysis. 





Overall Relief

Our first key finding is that the actual amount of debt relief provided to all developing countries to date has been pretty modest.

From 1982 through 2005, in comparable $2006 NPV terms, the total value of all low- and middle-income developing country debt  that was “relieved” -- rescheduled, written down, or cancelled –- was only $310 billion -- just 7.8 percent of all the pre-relief debt outstanding.   

Low-Income Relief

The relief ratio for the world’s 60 poorest countries  has been higher – about 28 percent of their pre-relief debt levels. All told, in PV terms, these countries have received  about $161 billion of debt relief – more than half of all the debt relief to date.  This is now saving the recipient countries about $15.3 billion per year of debt service.

This  is certainly nothing to sneeze at.  But it is a far cry from the extra $50 billion to $100 billion per year of cash aid that most leading development experts believe will be needed if developing countries  are to attain the (rather modest) “Millennium Development Goals” that were set back in 2000 by the UN, with a target date of 2015.   

It is also important to remember that most low-income countries have been waiting a very long time for even this modicum of debt relief, most of did not start arriving until the late 1990s. By then, several countries that had not been “highly-indebted” to begin with had become so, just by dint of the delay.

Debt Relief Sources – Low-Income Countries

Our analysis shows that 30 percent of  this low-income debt relief has come from the World Bank/ IMF’s HIPC and MDRI programs. Another 30 percent has come from Russia alone, which forgave a substantial load of bilateral debt that were owed to it by Nicaragua, Vietnam, and Yemen, when Russia joined the Paris Club in 1997. In February 2006, Russia also wrote off another $5+ billion debt that was  owed by Afghanistan.

Finally, another $65 billion of debt relief for low-income countries  was provided by the Paris Club, an association of First World export credit agencies (EGCs) like the US EXIM Bank and the UK’s EGCD.  These agencies have a strong “client base” among the ranks of First World exporters, contractors, and engineering firms. All these private entities received significant business from the first round of Third World lending, in the form of orders for large projects.  They are now eager to have the EGCs forgive still more loans,  at taxpayer expense, in order  to clear the way for another round of project finance.

On the other hand, leading global banks like Citigroup, UBS, JPMorganChase, Goldman Sachs,  Deutsche Bank, BNP, and ABN-Amro, and Barclays, have provided a grand total of just $1.5 billion of low-income debt relief,  mostly by way of the HIPC program.

In the 1970s and early 1980s, of course,  these giant international banks led the way in syndicating loans for developing countries. At the same time, many of them also became pioneers in “private banking,” the dubious business of helping Third (and First) World elites park their capital offshore and onshore, as free of taxes and regulations as humanly possible. 

Since the early 1990s, apart from China and India, these private banks have largely handed over the task of providing new loans to low-income countries to multilateral institutions like the IMF, the World Bank, and the IDB, as well as to the EGCs.  Ironically, this has permitted them to focus on more lucrative Third World markets, including low-debt/ high-growth markets like China and India.


For middle-income countries, while the foreign loan business was booming in the 1970s and early 1980s,  these banks became deeply involved in stashing abroad the proceeds of the banks’ own country loan syndicates.   For low-income countries, private bankers  were more often called upon to recycle the proceeds of  loans from the development banks, the IMF, and the EGCs, as well as the proceeds of various government-owned asset rip-offs. 

Overall, therefore,  from the standpoint of debt relief, these First World financial giants have provided very little debt relief. This is despite the fact that they have not only reaped enormous profits from Third World lending, but also continue to reap enormous profits from Third World private banking. In the wake of the debt crisis, they have also been able to scoop up undervalued financial assets – banks, pension funds, and insurance companies – in countries like Mexico, the Philippines, and Brazil. In good times and in bad, in other words, these private institutions have always found ways to prosper, help their clients  launder money, evade taxes, and conceal ill-gotten gains, and they have never been reluctant to profit from social catastrophe.

We will return to these financial giants below, because the history of their involvement in this story suggests one possible antidote for our “debt relief” blues.

B. Middle-Income Relief

So-called “middle-income” countries like Brazil and Mexico have received $149 billion of debt relief –- just 4.3 percent of their $3.4 trillion of pre-relief debt outstanding.  As discussed below, most of this was obtained by the early 1990s, by way of Paris Club restructuring and  the Brady Plan.

This reflected the high priority given to these large, lucrative, highly-indebted markets in the 1980s by First World banks and governments, mainly because such a large share of their loan portfolios was tied up in them. 

That, indeed, was the true meaning of the “Third World debt crisis,” so far as First World bankers, central bankers, officials and, indeed, most First World journalists was concerned.  It was viewed primarily as a ‘crisis’  for the banks and their shareholders. Over time, as they managed to reduce their exposure, the “crisis” disappeared from the headlines  – except for the countries involved. 

Debt Relief Sources – Middle-Income Countries

Overall, private banks provided $75 billion of debt relief to middle-income countries, about half the total. Most of this was achieved through debt swaps and buy-backs. The Paris Club added another $28 billion, mainly by way of traditional bilateral debt rescheduling.

The US Treasury added $47 billion, by way of the Baker Plan (1985-89) and the Brady Plan (1989-95.)  On its own,  the Baker Plan actually increased  middle-income country debt by $77 billion, consuming $45 billion of US taxpayer subsidies in the process.

From 1995 to 2002, the US Treasury, the World Bank, and the IMF also provided short-term financial relief to several large middle-income countries like Argentina, Brazil, Mexico, and Indonesia. In theory, these were pure reschedulings, with all loans paid back with interest,  and no net impact on “PV debt” levels.

In practice, several of these bailouts were completely mismanaged. Indonesia, Mexico, and Argentina were all permitted to use their emergency dollar loans to bail out dozens of domestic banks and companies -- which just happened to be connected to influential members of the local elite, who were also “not unknown” to leading private bankers and US Treasury Secretaries.

So a large share of these bailout loans was wasted on outright graft. On the other hand, countries were still expected to service the bailout loans,  often at very high interest rates. Given their reluctance to raise taxes, especially on capital,  most countries repaid the bailout loans by boosting domestic debt – in effect, by printing money. For example, Mexico’s bailout in the mid-1990s ended up costing the country’s taxpayers more than $70 billion, while Indonesia’s bailouts ended up costing the country at least $50 billion.  In effect,  the  bailouts actually ended up increasing overall country debt levels,  just as the Baker Plan had done. Our estimates of debt relief have generously omitted the impact of these bailouts, which would make the total amount of debt relief even smaller.

Overall, during the 1970s and 1980s, middle-income countries like Argentina, Brazil, Indonesia, Iraq, Mexico, the Philippines, Russia, Turkey, and Venezuela became the world’s largest debtors. Combined with the fact that they have also received so little debt relief since the early 1990s, this helps us to understand why their debt service costs soared to all-time highs since 2000, in real terms, and relative to national income.  Recent debt relief programs have focused almost entirely on low-income countries, ignoring the situation of heavily-indebted middle-income countries.  This is another strategic choice that debt relievers may want to reconsider.

The Political Economy of “Debt Relief”

So what’s gone wrong with debt relief? Why has so little been achieved after all these years? Whose interests have been served, and whose have been ignored or gored? Is there a different strategy that could have  been more effective?

A. The Roots of the “Debt” Crisis

To understand this disappointing debt relief track record, it will be helpful to review the origins of the so-called “Third World debt crisis.”  This continuing crisis had its roots in the fact that from the early 1970s to 2003, developing countries absorbed  more than $6.8 trillion  of foreign loans, aid, and investment, much more foreign capital than they had ever before received.

A handful of developing countries managed this enormous capital influx more or less successfully -- for example, Asian countries like Korea, China, India, Korea, Malaysia, and Vietnam. For a variety of historical reasons, they were able to resist the influence of First World development banks and private banks. Today they are the real winners in the globalization sweepstakes, ranking among the world’s fastest growing economies  and the First World’s most important suppliers, customers, and potential competitors. 

Our concern here is not with this handful of winners, but with the great majority of the world’s 150 developing countries.  In general, compared with the winners,  they have been much more open to unrestricted foreign capital and trade since the 1970s, as well as policy advice from the “BWIs” (the Bretton Woods institutions – the World Bank and the IMF).  For many countries this close encounter with global capitalism has proved to be troublesome – indeed, for many,  disastrous.   

In effect, these countries have conducted a very risky policy experiment for several decades.  By now the results are clear. Across country income levels, these countries have  paid a very heavy price for unfettered access and dependence on foreign banks. Indeed, we are hard-pressed to find a single exception to the miserable track record of this “wide open, debt-heavy, bank-promoted” growth strategy.

Lousy Regimes and Unproductive Debts

Overall, we estimate that more than a trillion dollars – at least 25 to 35 percent  -- of the $3.7 trillion foreign debt that compiled by low- and middle-income countries from 1970 to 2004  either disappeared into poorly-planned, corruption-ridden "development" projects, or was simply stolen outright. 
For several of the largest debtors, like the Philippines, Indonesia, Mexico, Brazil, Venezuela, Argentina, and Nigeria, the share of the debt that was wasted was even higher. Indeed, one of the most important patterns underlying the  “debt crisis” was that borrowing, wasteful projects, capital flight, and corruption were all concentrated in a comparative handful of countries.   As we’ll argue, this is crucial fact for those who seek to revitalize the debt relief movement to understand,  because it implies that the interests at stake are far greater than those that have come to the surface in the struggle for “low income” debt relief. 
Low-Income Heavy Borrowers

In the case of the 48 low-income countries that eventually qualified for debt relief from the BWIs  under the HIPC and MDRI programs, a similar pattern of concentration applies. In the early 1980s,  the real value of these countries’ debts increased by 70 percent in just six years.  By the time the World Bank got around to launching HIPC in 1996, their debts had increased another 7-10 percent.  Just 11 of these low-income countries –- including Bolivia, Congo Republic, Cote d’Ivoire, DR Congo, Ethiopia, Ghana, Mozambique, Myanmar, Nicaragua, Sudan, and Zambia -- accounted for 68 percent of  this group’s debt increase from 1980 to 1986.

All these top low-income borrowers were not only desperately poor to begin with,  but they were also either “weak open states” run by kleptocratic dictators, or  were caught up in bloody civil wars –  in most cases, both at once.   Sometimes the causality flowed in both directions -- excess debt could exacerbate political instability. But the primary relationship was the unsavory combination of weak states, corrupt leaders, wide open capital markets, and symbiotic relationships with “easy money” and seductive bankers.

Extending this analysis to the key middle-income debtors noted  above, we find similar long-run patterns of mis-government, weak states, and wide-open banking.

All this suggests that the heaviest debtors got into troubles for reasons that only were only  superficially related to  the usual villains in the orthodox neoliberal account of debt crises -- “exogenous shocks,” “policy errors,“ “liquidity crises,” and – when pushed to acknowledge the existence of corruption and capital flight – a “lack of transparency in the management of natural resources.”  Those countries that are deepest in debt and most in need of relief today include countries that have long been among the most consistently mis-governed, wide-open, and “mis-banked.” While natural resource wealth like minerals and oil have indeed often turned out to contribute to economic mismanagement,  their presence is not a sufficient condition for such mismanagement – the decisive question is the relationship between foreign and domestic elites.   

From the standpoint of debt relief, this pattern presents a dilemma –Without insisting on deep political reforms,  simply providing countries with more relief alone might accomplish little – they are likely to dig themselves right back into a hole. After all, corrupt dictatorships like the Central African Republic have been more or less continuously in arrears on their foreign debts since at least 1971!

The Debt/Flight Cycle

Servicing these huge unproductive debts took a large bite out of these countries’ export earnings and government revenues,  draining funds that were badly needed for health, education, and other forms of  public investment, and helping to produce crisis after  financial crisis. Growth, investment, and employment were throttled by the continuing need – enforced by First World creditors --  to generate enough foreign exchange to service the loans.

Meanwhile, even as all this foreign capital was rushing in, an unprecedented quantity of flight capital – including a substantial portion of the loan proceeds – headed for the exits.

Of course Third World capital flight is an old story, associated with long-standing factors like individual country political risk, unstable currencies, bank secrecy, the rise of “offshore havens,”  and the absence of global income tax enforcement. 

But the dramatic increase in poorly-managed financial inflows to the developing world in the 1970s and early 1980s – especially foreign loans and aid – boosted these capital outflows by an order of magnitude. They basically overwhelmed existing political institutions in many countries, producing the largest tidal wave of flight capital in history, and fundamentally revolutionizing offshore private banking markets. 

We simply cannot account for this sharp increase in flight capital unless we take into accounts its close relationship to all this “lousy lending and loose aid.” 

Poorly-controlled lending and foreign aid contributed to the rise of global flight capital in the first place.  From one standpoint it did so in a purely mathematical sense, by providing the foreign exchange that was needed to finance capital flight. But that doesn’t explain why these new “loanable funds” didn’t become a net addition to investment  in the borrowers’ economies. The loans also stimulated additional capital flight, for several reasons: (1) they destabilized the economies of many newly-indebted countries, providing more capital than they could productively absorb in a short period of time; (2) the inflows provided sources of government revenue that were not directly responsible to taxpayers. This generated enormous opportunities for corruption and waste, partly by way of poorly-planned projects with weak financial controls, and partly by providing Finance Ministers, central bankers, and other insiders with dollars they could use to  speculate against their own currencies; (3) the debt flows laid the foundations for a new, highly-efficient global haven network, which made it possible to spirit funds offshore and stash them in anonymous, tax-evading investments.  It is no coincidence that this network was dominated by the very same global banks that led the way in Third World syndicated lending. 

All this combined to encourage Third World officials and wealthy elites to move a significant share of their private wealth offshore, even as their own governments were borrowing more heavily abroad than ever before.   

Part of the resulting flight wave took the form of large stocks of strong-currency “mattress money” that was hoarded by residents of Third World countries -- especially $100 bills, Swiss francs, Deutschmarks, British pounds, and after 2002,  €100, €200, and €500 notes. By 2006, for example, the total stock of US currency outstanding was $912 billion. At least two-thirds of it was held offshore, especially in developing countries with a history of devaluations.   

An even larger amount  of capital flight was accounted by  private “elite” funds that were spirited to offshore banking havens  – often, it turns out,  with the clandestine assistance of the very same First World banks, law firms, and accounting firms.

The outflows that resulted from this “debt-flight” cycle were massive -- by my estimates, an average of $160 billion per year (in real $2000),  each year, on average,  from 1977 to 2003.   

Furthermore, a great deal of  this flight capital was permitted to accumulate offshore in tax-free investments,  especially bank deposits and government bonds by nonresidents, which were specifically exempted from taxation by First World countries. By the early 1990s, he total stock of untaxed Third World private flight wealth soon came to exceed the stock of all Third World foreign debt. 

Indeed, for the largest “debtors,” like Venezuela, Nigeria, Argentina, and Mexico – the same countries that dominated borrowing --  the value of all the foreign flight wealth owned by their elites is almost certainly now worth several times the value of their outstanding  foreign debts.   

For so-called “debtor” countries, therefore,  the real problem was never simply  a “debt” problem; it was  an “asset” problem – a problem of collecting taxes, controlling corruption, managing state-owned resources, and recovering foreign loot.  All this, in turn, was based on the fact that a huge share of private wealth had simply flown the coop, under the “watchful eyes” of the BWIs, other multilateral institutions, Wall Street, and the City of London.

Meanwhile, these countries’ public sectors – and ultimately ordinary taxpayers – were stuck with having to service all these unproductive debts, while their legal systems, banking systems, and capital markets also ended up riddled with corruption.

Conventional economists have not ignored these phenomena completely. But they have tended to compartmentalize them into “institutional” problems like “corruption” and “transparency,” and have treated them as “endogenous” to particular countries.  In this approach, the individual country is the appropriate unit of analysis. In fact, however, such local problems were greatly exacerbated by a global problem – the structure of the transnational system for financing development, on the one hand, and for stashing vast quantities of untaxed private capital  -- from whatever source derived --  on the other.

Human Capital Flight

This underground river of financial flight was also accompanied by an increased  outflow of “human capital” as well,  as large parts of the developing world became jobless and unlivable, and a significant share of its precious skilled labor decamped for growth poles like Silicon Valley and other booming First World labor markets. My own estimate for the net economic value of this displaced Third World “human flight” wealth, as of 2006,  is  $2.5 to $3.0 trillion. 

This offshore human capital does send home a stream of remittance income that is now estimated at $100 billion- $200 billion a year. But much of this is wasted on high transfer costs and other misspending. Clearly, a country that chooses to depend heavily on labor exports – as the Philippines, Mexico, Haiti, and Ecuador have done, is a poor substitute for generating jobs and incomes at home.   

Summary – Roots of the Crisis

Overall, the impact of the patterns just described on Third World incomes and welfare has been devastating.  Except for the handful of globalization winners that managed to avoid the “debt trap” and neoliberal nostrums, real incomes in the Third World basically stagnated or declined from 1980 to 2005.   While growth has revived since then, especially among commodity  exporters, large parts of the developing world are still struggling to regain their pre-1980 levels of consumption, social spending, and domestic tranquility. 

In addition to prolonged stagnation, many countries have also experienced sharp increases in unemployment, poverty, inequality,  environmental degradation, insecurity,  crime, violence, and political instability, all of which were exacerbated by the debt-flight crisis.

Of course, instability was sometimes beneficial – in Argentina, Bolivia, Brazil, Chile, Guatemala, Indonesia, Kenya, Mexico,  the Philippines, and South Africa, financial crises helped to undermine autocratic regimes. But we should be able to democratize without so much hardship.

All these Third World troubles provided a striking contrast to the First World’s relative prosperity during this period. To be sure,  there were brief hiccups at the hands of oil price spikes in 1973 and 1979, plus recessions of 1982-83, 1990-91, and 2001-03. Japan stagnated in the 1990s, and France and Germany also experienced prolonged doldrums. But these were the exceptions. Overall, a large share of the world’s poor basically treaded water, while most First World residents paddled by.  (continued on page 27)


B. “Can’t Get No Relief!”

Whatever one thinks of neoliberal policies, therefore,  it is very hard to make this track record look like an achievement. This perspective should help us to view  “debt relief” in a different light.

Given this history,  we might well have expected that at least by now,  First World governments, the BWIs, and even the global private banking industry would have acknowledged their partial  responsibility, pitched in, and offered to share a large portion  of the bill.

Obviously this hasn’t happened. As the sidebar discusses, this is not because of any principled opposition to “debt relief” per se. Indeed, debt relief turns out to be a venerable capitalist institution, at least where the debtors in question have clout. 

Nor was it possible for the countries themselves to agree on a unilateral moratorium on debt service.  More generally, while a handful of individual countries -- Argentina in 2001-2, Russia after World War I, and Cuba in the early 1960s and 1980s –- have declared debt moratoria on their own,  Third World debtors as a whole have never been able to marshal the collective will needed to take this step. 

Given this, the only alternative has been to rely on voluntary actions by First World creditors, as accelerated by appeals to conscience. We’ve seen the rather modest results that this approach has achieved.

Several key factors are at work here:

•    Sticks. Most developing countries believe they are too dependent on the  trade finance and aid to risk outright defiance of international creditors.

•    Carrots. Many members of the Third World elite have been “bought in.” One common reward is the opportunity to participate in international ventures and receive foreign loans and investments.  Beyond that, there is a whole range of other incentives, including  offshore accounts, insider profits, and outright bribes and kickbacks. There are also more subtle forms of influence  -- Dow Jones board seats (Mexico’s Salinas), positions at prestigious universities, banks and BWIs (Mexico’s Zedillo at Yale, Argentina’s Cavallo at NYU, (Bolivia’s ex-Finance Minister Juan Cariaga) and any number of other former officials at the World Bank/ IFC) participation in other exclusive organizations (for example, the Council of the Americas, the Council on Foreign Relations, or the Inter-American Dialogue), and even more subtle forms of ideological influence. These intra-developing world networks have been relatively weak.

•    The Banking Cartel. Compared with the debtor countries,  the global financial services industry is very well organized. Country specialists at leading banks and BWIs have dealt with the same debt problems over and over again, while on the country side, dozens of debt negotiators  have come and gone.  Specialists like Citigroup’s William Rhodes and Chase’s Francis Mason were adept at isolating more militant countries and exploiting inter-country rivalries. Boilerplate language in standard country loan and bond contracts – for example, jurisdiction and cross-default clauses – also helped to perpetuate the “creditor cartel.” 

•    Declining Political Competition.  After 1990, the Soviet Empire ceased to be a serious competitor for Third World affections. Interestingly, from that point on, the real value of total First World aid and aid per capita to developing countries fell until late 1990s.  Meanwhile, First World banks completed write-downs of Third World loans, and  the BWIs and other official institutions displaced them as the principle source of new low-income loans.  With credit risk effectively transferred to the public sector, and the largest debtors focused on the neoliberal reforms that the BWIs were demanding in exchange for debt relief, debtor country support for joint relief atrophied.



With country debtors so fragmented, “small-scale” debt relief became just another instrument of neoliberal reform, while the cause of “large-scale” debt relief was relegated to the NGO community, without much developing country involvement. The resulting “movement” was a loosely-run coalition of First World NGOs and well-meaning celebrities. Lacking a strong political base, the movement mounted a series of intermittent media campaigns. It also assumed the supplicant position of appealing to the “better selves” of  politicians like Tony Blair and George Bush, central bankers, and BWI bureaucrats – a hard-nosed, flea-bitten bunch if ever there was one.

The Best-Laid Plans…     

One factor that certainly has not played a role in the failure to achieve substantial debt relief is a shortage of clever proposals from the First World policy establishment.

Indeed, ever since Third World borrowing took off in the 1970s, there has been a plethora of schemes for “international credit commissions,” “debt facilities,” debt buybacks,  debt-equity swaps, and “exit bonds.” In the last decade, as frustrations with HIPC grew, there have also been proposals for a new “sovereign debt restructuring agency,” global bankruptcy courts, and modifications in the boilerplate contracts noted above.

These proposals provided grist for a steady stream of journal articles and conferences, but very few made much practical difference. The overall pattern was  one of cautious incrementalism -- a  series of modest proposals, each one just slightly more ambitious than its predecessor, and all doomed to be ineffectual – but with the  saving grace that at least no powerful financial interests would be offended.

A. The Baker Plan

The majority of today’s Third World population  was not even born in October 1985 when Reagan’s second Treasury Secretary, James A. Baker III, announced his “Baker Plan” for debt relief. This acknowledged the fact that the market-based debt rescheduling approach to the debt crisis pursued by commercial banks since 1982 wasn’t working.  Indeed, traditional rescheduling was aggravating the problem, because banks had ceased to provide new loans, while continuing to role over back-due interest at higher and higher interest rates.

The Baker Plan hoped to change this by offering a combination of new loans funded by US taxpayers and the MFIs, plus some private bank loans, in exchange for “market reforms” in the recipient countries. It was motivated by the conventional notion that the 1980s debt crisis was basically a short-term “liquidity” problem, not a reflection of deeper structural interests. Supposedly a fresh round of (government-subsidized) new loans, conditioned on reforms, would allow debtor countries to “grow their way” out of the “temporary” crisis.

By 1989, the Baker had produced a grand total of $32 billion of new loans,   mainly to 15 middle-income countries like Mexico and Brazil. This was achieved at a cost of  $45 billion to First World taxpayers, by way of the US Treasury. By comparison, the gross external debt of all developing countries at the time was about $1 trillion, so the amount of relief provided was relatively small. Indeed, to the extent that the Plan added $77 billion to Third World debt,   it actually constituted negative debt relief.

Finally, of course, both Plans omitted almost all low-income countries completely, partly because First World exposure to them was limited,  and partly because at that point, the notion of writing down “development loans” was still  anathema to the World Bank and the IMF.

B. “Market-Based” Debt Relief

While observers were waiting for the Baker Plan to work in the late 1980s,  private banks  were also busy retiring to manage some $26 billion of debt on their own, by way of so-called “market-based” methods, including buy-backs and debt swaps. Some of these techniques had harmful consequences for the countries involved. They also tended to reinforce the de facto “takeover” of the Third World debt problem by the BWIs and other official lenders. With our support, however, they succeeded in offsetting part of the Baker Plans’ harmful effect on debt levels, however. 
C. The Brady Plan

When these two approaches failed to make much of a dent in the problem, James Baker’s successor, former Wall Street investment banker Nick Brady came up with a more aggressive debt swap plan in March 1989. The key motivator was not just generosity. Brazil’s February 1987 attempted moratorium on interest payments had set a dangerous precedent,  and Mexico’s rigged July 1988 Presidential transition, combined with its huge debt overhang and declining oil prices, suggested that a more widespread default might occur unless more debt relief were forthcoming. 

Under Brady’s plan, first implemented by Mexico in July 1989, private banks agreed to swap their country loans at 30-35 percent discounts for a menu of new country bonds, whose interest and principle were securitized by bonds issued by US Treasury, the World Bank, the IMF, and Japan’s Export-Import Bank – backed up, in turn, by reserves from the debtor countries. 

By the end of the Brady Plan in 1993, this “semi-voluntary” incentives scheme had provided another relatively small dose of relief, mainly to about 16 Latin American, middle-income countries like Argentina, Brazil, and Mexico, plus US favorites like Poland, the Philippines, and Jordan.  With the help of taxpayer subsidies, it also succeeded in virtually wiping out the debts owed by several small developing countries – Guyana, Mozambique, Niger, and Uganda – to private banks. By 1994, just prior to Mexico’s “Tequila Crisis,” the Brady Plan had yielded about $124 billion (in $2006 NPV terms) of debt reduction – at a cost of $66 billion in taxpayer subsidies.  To date, it remains the largest – and most costly -- initiative in the entire debt relief arena.

Some have argued that Brady Plan also had a beneficial indirect effect on the total amount of new loans and investments received by debtor countries in 1989-93, by way of its impact on equity markets and direct investment.  However, these gains were more than offset by increased capital flight, leaving a net benefit to developing countries that was almost certainly lower than the initial First World tax subsidies.

Furthermore, any such gains were largely wiped out by the subsequent financial crises in Mexico, Argentina, Brazil, Nigeria, Peru, and the Philippines in 1995-99. These were partly due to the brief surge of undisciplined borrowing, facilitated by the Brady Plan   Indeed, while the early 1990s produced a reduction in debt service relative to exports and national income for the 16 countries, by the end of 1990s, most of the “Brady Bunch” had seen their debt burdens return to pre-Plan levels. 

Overall, therefore, this provides a graphic illustration of the point noted earlier: without basic institutional reform – not just “market” reforms within one country, but more general reforms of the global financial system – debt relief in one period may just lead to increased borrowing and another crisis in the next.

D. “Traditional” Bilateral Relief – Low Income Countries

As noted, these early debt relief initiatives were focused mainly on the world’s largest debtors, although a handful of low-income countries took advantage of them. By the late 1980s, there was a growing recognition of the trend described earlier – that the debts of low-income countries were exploding. 

These countries were also paying astronomical debt service bills, despite the fact that they had all qualified for “concessional” finance. By 1986, 19 out of the (future) 38 HIPC low-income countries were devoting at least 5 percent of national income to servicing their foreign debts, and many countries were paying much more. On average, debt service consumed over a third of their export revenues, compared with less than 10 percent  a decade earlier.  And the “present value” of their low-income country debt had continued to rise throughout the Baker/Brady Plan period. By 1992, the debt was three times the l980 level, and well above the 1986 level.  Finally, from 1985 on, private bank lending to low-countries had  only  been exceeded by lending by development banks and export credit agencies.

One of the first to recognize the need for a closer focus on low-income debt was another UK Chancellor, Nigel Lawson. In 1987 he proposed that the Paris Club refocus its negotiations with debtor countries on trying to reduce  their “debt overhang” – the present value of their expected future debt service payments.  This  was a striking contrast to conventional debt relief, where the goal of rescheduling had always been to  avoid write-downs and preserve the loans’ present value by stretching out repayment. Once again,  that had assumed that the key debt problem was one of “illiquidity” and that the nasty random shocks would soon reverse themselves. As Lawson and other observers had come to recognize, in the absence of serious intervention, the resulting “debt overhang” might just become permanent.

Lawson’s proposal launched the Paris Club on a prolonged series of debt restructurings. In the next decade,  it conducted 90 bilateral restructurings with 73 individual countries, on increasingly-generous term sheets.  By 1998, this effort – supplemented by assistance for debt swaps from the World Bank/IDA’s Debt Facility --  had produced another $95 billion of debt relief. 
E. HIPC

In September 1996, the BWIs established the “HIPC Initiative,” their first comprehensive debt relief program ever, targeted at “heavily-indebted developing countries.” They didn’t take this initiative unilaterally – they were responding to numerous complaints from NGOs and the debtor countries, who said that existing  relief programs were not doing enough for the world’s poorest, most insolvent countries, and that it was  also high time for multilateral lenders like the IMF and the World Bank to finally share the costs.

Initially the program was supposed to include the 41 low-income countries that had been included on the World Bank’s first list of “HIPCs” in 1994. That list was supposed to have been determined by objective criteria, including real income levels and the “sustainability” of projected debt service levels,  relative to projected exports. But such criteria are of course anything but objective, especially where acute foreign policy interests are concerned. The original list of countries  would have included all those with per capita incomes less than $695 in 1993, plus (a) PV debt to income ratios of at least 80 percent,  or (b) debt service to export ratios of at least 220 percent. Those criteria would have admitted such major debtors as Angola, Nigeria, Kenya, Vietnam and Yemen.  On the other hand,  it would have also omitted future HIPCs like Malawi, Guyana,  and Gambia. As of 1996, the countries on this original HIPC list accounted for $244 billion of debt and 672 million people – about 63 percent of all low-income country debt and more than a third of all low-income country residents.

Qualifications

For a variety of reasons – including shifting admissions criteria, the desire of the BWIs to contain costs, and sheer geopolitics – this initial list was soon altered.  Seven countries, including several large low-income debtors like Kenya, Nigeria, and Angola, were eliminated, while nine much smaller countries suddenly qualified for relief.   When the dust settled, there were still precisely 41 countries on the HIPC debt relief list. However, compared with the original list, as of 1996, they now only accounted for 39 percent of all low-income country debt –- indeed, only 6 percent of all developing country debt --  and just 23 percent of all low-income country residents.

This downsizing was partly just due to BWI self-interest. The World Bank is a self-perpetuating bureaucracy, funded by its own long-term bond sales, as well as by First World contributions.  It is always very concerned about securing its own cash flow and debt rating.

In principle, contributions from the BWI’s  First World members could always make up any shortfalls.  In practice, however, the World Bank liked to avoid having to solicit contributions from the US Congress – it always meant difficult hearings where the Bank had to explain where Togo or the Comoros was, and why it deserved assistance.

Initially the BWIs had proposed to fund HIPC debt relief by liquidating part of the IMF’s huge 3.22 metric tons of gold reserves, whose market value had increased to several times book value.  Indeed, in 1999-2000, the IMF had conducted a round-trip sale and buyback of 12.9 million ounces with Brazil and Mexico, booking the profit to fund HIPC’s initial costs.  Here, however, another powerful set of interests intruded. The BWIs’ proposal for a much larger gold sale were successfully scuttled by the World Gold Council’s lobby, whose membership includes 23 leading global gold mining companies, including the US’ Newmont Mining, South Africa’s AngloGold, and Canada’s Barrick Gold Corp. 

So debt relief turned out to be  something that  the BWIs  had to fund on a “pay as you go” basis,  through bond sales and periodic contributions from its First World  members. The larger the amount of debt relief, the smaller the World Bank’s own loan portfolio, and the more it feared that its own bond rating and financial independence might be jeopardized. So it had an innate bias in favor of providing less debt relief.

As for the precise list of qualifying countries, there were many anomalies. For example, as of the mid-1990s, Angola, Kenya, Nigeria, and Yemen all had higher debt burdens and lower per capita incomes than many of the countries on the final HIPC list, but they were excluded. 

On the other hand, at the behest of France, HIPC analysts also designed specific rules so that the Ivory Coast would be included, despite the fact that it had a higher per capita income and lower debt burdens than many other countries on the list. Guyana,  a bauxite-rich former British colony in northeast South America with a population of just 750,000 and a  real per capita income of $3600 – clearly a “middle income” country, if anyone cared to object – was also admitted.

Meanwhile, HIPC excluded 29 other mainly middle-income countries that had been classified by the World Bank itself as “severely indebted,” including “dirty debt” leaders like Argentina, Ecuador, Indonesia, Pakistan, and the Philippines. In many cases their debt burdens were much heavier than those that were admitted to the HIPC club.   (continued below)

All these exclusions were important, because it turned out that while the “HIPC 38” did reduce their debt service payments by about $2 billion a year from 1996 to 2003, debt service payments by non-HIPC low income countries actually increased by several times this figure.   

Overall,  the BWI’s filters with respect to “sustainable debt” and income were inconsistently applied. They were intended to contain the size of debt relief and focus it on tiny, more malleable countries.

The Long March

Debt critics were naturally a little disappointed at HIPC’s modest scope, relative to the size of all outstanding Third World debt. But at least they thought they could count on the BWIs to provide speedy debt relief to those countries on the HIPC list.

Unfortunately, even for those countries, the journey usually proved to be a very long march. The World Bank and the IMF decided to impose   a  long, drawn-out, tortuous process before countries actually got any relief, conditioning it on a menu of all the BWIs favorite neoliberal reforms, including privatization, tariff cuts, and balanced budgets.

This was especially hard to account, in light of the fact that the HIPCs on the final list were hardly prime prospects for First World banks, contractors, or equipment suppliers. Fully half had populations smaller than New Jersey’s, with per capita incomes averaging less than $1100, and average life expectancies of just 49 years. So offering this crowd debt relief was unlikely to set a dangerous “moral hazard” precedent.
Nevertheless, under the original 1996 “HIPC I” scheme, countries were supposed to spend three years implementing such reforms under the WB/IMF’s watchful eye before they reached a “decision point.” Then a debt relief package would be assembled and a modest amount of debt service relief would be approved.
Countries were then supposed to continue their good behavior for another 3 years before reaching the “completion point,” at which point they’d finally see a serious reduction in debt service.
Even then, they wouldn’t receive a total debt write-off, but only a partial subsidy, reducing debt service to a level that the WB/IMF considered “sustainable,” relative to projected exports. 
Along the way, countries were also expected to draw up an IMF/World Bank-approved “Poverty Reduction Strategy Paper,” negotiate a “Poverty Reduction and Growth Facility,” and engage the IMF and the World Bank in regular, rather intrusive “Staff Monitoring Programs.”
To some extent, all this policy paternalism was justified by the fact that, as we’ve seen, many of these countries were unstable, poorly-governed, war-torn places. This is the old “more sand, same rat-holes” aid dilemma noted earlier – those countries most in need of assistance are also often precisely the ones with the most limited ability to use it wisely. Furthermore, under the influence of neoliberal policies, state institutions in many of these countries have become even weaker.

However, from the standpoint of delivering debt relief in a timely fashion,  the BWI’s strictures clearly went beyond the pal. Many BWI technocrats  adopted a kind of righteous, almost creditor-like stance toward the countries – perhaps because, after all,  the BWIs are substantial creditors.  They may also prefer gradual debt relief because this preserves their control. In any case, all of this is a poor substitute for the more constructive  neutral role that, say,  a “trustee in bankruptcy” would typically play in bankruptcy proceedings.

Combined with country backwardness, this  creditor-cum-neoliberal-reformer mentality had  predictable results. Indeed, if HIPC’s  true goal was to avoid giving meaningful debt relief, it almost succeeded!  By 2000, just six countries – Bolivia, Burkina Faso, Guyana, Mali, Mozambique, and Uganda - had managed to reach “completion,” and zero debt relief had been dispensed. Eventually, HIPC I afforded a grand total of $3.7 billion  of debt relief  to these six countries.    Even this amount was not distributed immediately in most cases, but was spread out over decades. For example, Uganda’s debt service relief from the World Bank was stretched out over 23 years, Mozambique’s over 31 years,  and Guyana will still be collecting $1 million per year of debt relief in 2050!

Would that First World  creditors and the BWIs had been anywhere near as circumspect about making loans to developing countries as they have been  about administering debt relief!













HIPC II

In June 1999,  following the massive “Drop the Debt” rallies at the May 1998 G-8 meeting in Birmingham, the WB/IMF launched “HIPC II,”  supposedly a faster, more generous version of HIPC I. But even this version soon proved to be embarrassingly slow. By 2006, of the 38 countries on the initial HIPC list way back in 1996, just 18 had reached  the “completion point.” Eleven others had reached their “decision points,” after a median wait of 49 months, but five of these were reporting “slow progress.”  Of the other original nine, just one was both ready to qualify and interested in participating. 

To fill out the ranks, in 2006 the WB/IMF identified six more low-income countries that might still be able to qualify for HIPC relief before the curtains finally descend in December 2006. However, only two of these were both ready and willing to try for this deadline. 

All told, compared with the original target group, at the end, HIPC was down to providing debt relief  to countries that accounted for just 18 percent of outstanding low-income debt and 13 percent of the world’s low income population.

The HIPC Sweepstakes

Those countries that managed to navigate all the HIPC hurdles did finally receive some debt relief – all told, for HIPC I and HIPC II,  a grand total reduction in debt service of $832 million per year for 2001-2006, compared with debt payments in 1998-99.  This sum was divided among for all 27 countries that had reached their completion or decision points. 

Some countries did much better than others.  For example, middle-income Guyana progressed quickly through the program, qualifying for debt relief to the tune of $937 per capita from both HIPCs  – compared with the “HIPC 38’s” average of just $75 per capita.  Indeed, Guyana became something of a pro at debt relief – by 2006, it had achieved a record total of $2971 for each of its citizens,  from all debt relief programs to date. 

Sao Tome, Nicaragua, Congo Republic, Guinea-Bissau, Zambia, Bolivia, DR Congo, Mozambique, Mauritania, Sierra Leone, Ghana, and Burundi also did relatively well on a per capita basis, all realizing more than $100 of HIPC relief per citizen. 

In terms of the share of all HIPC relief received, the clear winner was DR Congo, Mobutu’s old stomping ground,  which commanded an astounding 18.2 percent of al HIPC relief, and, indeed, nearly 8 percent of all First World debt relief received by low-income countries.

In these terms, other winners included Nicaragua (9.5% of HIPC, 10.8% of all relief), Zambia (7.2%/4.9%), Ethiopia (5.7%/5.5%), Ghana (6.2%/2.6%), Tanzania (5.8%/4.8%), Bolivia (3.7%/4.2%) and Mozambique (5.8%/6.7%), which single-handedly captured 55 percent of HIPC I’s $3.7 billion benefit.

Compared with our original list of “war-torn debt-heavy dictatorships,”  there is a huge overlap: The top ten low-income borrowers  in 1980-86 accounted for more than half of both HIPC relief and all First World debt relief distributed from 1988 through 2006.  On the other hand, many other indebted low-income countries received much less debt relief, both in per capita and absolute terms. 

This per country/ per capita debt relief analysis, presented here for the first time,  underscores several of the most serious problems with using debt relief as a substitute for development aid.

Of course it is difficult to insure that reductions in debt service (or the increased borrowing that occur in the aftermath of debt reductions)  will be applied to worthy causes. (“The Control Problem.”)

Even apart from that, as noted in the accompanying tables,  the amount of relief available varies wildly across countries, according to factors that may have very little to do with development needs. (“The Correlation Problem.”)

The BWIs in charge of the HIPC program tried to tackle the “Control Problem” by insisting on country “poverty reduction” programs and policy reforms, and by monitoring government spending,  and so forth.  Whether or not that has worked is a matter of dispute – there is a strong case to be made that most of this conditionality was counterproductive. Clearly it succeeded in slowing down the distribution of relief.

But there is nothing that HIPC could  do about the “Correlation” problem – the lack of proportionality between debt relief and development needs. Relying on debt relief, in other words,  inevitably means that some of the worst-governed, most  profligate countries in the world may reap the greatest rewards.

Overall HIPC Results

As noted, HIPC does appear to have reduced foreign debt service burdens somewhat, especially for the 18 countries that managed to complete the program – although domestic debt service may be another story.

However, 11 of the original 38 HIPC countries still had higher debt service/income ratios in 2004 than in 1996. Indeed,  to this day, poor Burundi is still laboring under a PV debt/income ratio of 91 percent!

Furthermore, debt service ratios had already declined for 25 out of the 38 countries from 1986 to 1996, prior to HIPC’s existence. Debt service burdens also declined for many other low-income countries that didn’t enroll in HIPC, as well as for the 9 “pre-decision point” countries that have so far received no relief from it.  So it is not easy to call the HIPC program a “success,” even for those countries that have been able to reach the finish line. 

What is also indisputable is that the total amount of debt relief achieved by HIPC to date has been very modest. While conventional press accounts often refer to HIPC as providing at least “$50 to $60  billion” of debt relief to developing countries, the more accurate estimate is at most $41.3 billion by 2006. This is less than 10 percent of all low-income country debt outstanding. 

Of this, $7.6 billion was awarded to the original six countries in the HIPC I program, and another $33.7 billion is expected to be received by the other 23 countries that have at least reached  the “decision point.”  The potential cost of providing relief to the remaining 9 to 15 countries that might still qualify for HIPC is estimated at $21 billion, but very little of this will ever be forthcoming.  Indeed, the timing  and levels of relief are still highly uncertain for half of the 11 “decision point” countries.

Once again, all these figures refer to the present values of expected future debt service relief, not to current cash transfers. As of 2006, only a third of HIPC I’s relief and less than 20 percent of HIPC II’s had actually been “banked” – an average of less than $1 billion of cash savings per year, to be divided up among all these very poor countries.

The High Costs of HIPC Relief   

Even these modest savings were not cost-free to the countries involved. To comply with the BWI’s demands  for HIPC relief, developing countries were required to the usual panoply of neoliberal reforms, many of which had perverse political and economic side effects. There are many examples that illustrate this point.   

F. MDRI

Our final stop on the debt relief train is the “Multilateral Debt Relief Initiative” (“MDRI”), announced with so much fanfare at the July 2005 G-8 meetings.  On closer inspection, this debt relief plan was even less impressive and generous than HIPC.

By 2004,  many debtor countries  and First World NGOs had finally had it with HIPC.  However, MDRI only really came together because the UK Chancellor, Gordon Brown, saw a chance to earn some political capital, make up for the UK’s lagging foreign aid contributions, and  heal some of the bad feelings that had been generated by the UK’s support for the Iraq War, all at very little cost.

With HIPC already set to expire,  and with so much low-income debt still outstanding, Brown decided to work closely – and indeed help to fund -- the Live 8/”End Poverty Now” alliance’s “free” concerts.  The collaboration with the NGOs was facilitated by the fact that one of Brown’s senior advisors, a former UBS banker, was an Oxfam board member, while Tony Blair’s senior advisor on debt policy was Oxfam’s former Policy Director. 

These connections no doubt smoothed the reception for Brown’s proposals in the NGO world,  but they ultimately failed to achieve very much incremental debt  relief for poor countries.

To begin with, the actual cash value of the debt relief provided by MDRI is  far less than the "$40 to $50 billion" that was widely touted in the press. 

The face value of the IMF, World Bank, and African Development bank debts of the low-income countries that may be eligible  for cancellation adds up to about $38.2 billion. 

But MDRI’s debt relief, like HIPC’s will not distributed in one fell swoop.  Given the concessional interest rates that already applied to most of the loans in question, and that fact that many of them were already in arrears, the actual debt service savings that these countries may realize from the program is just $.95 billion per year, on average, distributed over the next 37 years, to be divided among 42 countries.

This may appear to be a modest sum to First World residents who are  used to seeing much larger sums spent on farm subsidies, submarines, highway programs, and invasions of distant countries.  But it is undeniably a large share of the $2.9 billion that the top 19 likely qualifiers for the program spend each year on education, or the $2.4 billion they spend on public health.

Still,  the  G-8 debt cancellation gets us just 6 percent of the way home toward, say, the Blair/Brown Commission for Africa’s proposed $25-$30 billion per year of increased aid for low-income countries in Africa.

It also compares rather unfavorably with the $1.3  billion per week that the Iraq War was costing in 2005, and the $2 billion a week that it is costing now.   

Furthermore, to qualify for this MDRI relief, countries will still have to go through many of the same hoops that HIPC put them through. At least 8 countries among the 42 – including large debtors like Somalia and the Sudan --  may never meet these qualifications.

Even for the top 19 countries that are likely to qualify, MDRI will still leaves them with $23.5 billion of higher-priced bilateral government debt and private debt that are outside the program, with an annual debt service bill of $800 million a year. And here again, of course, the point bears repeating – the countries have virtually nothing to show for all these debts.

Finally, even assuming - optimistically - that MDRI’s  42 potential beneficiaries would otherwise continue to pay the $.7 billion to $1.3 billion of debt service owed to the BWIs and the AfDB over the next 37 years without arrearages or defaults, the "net present value" of this debt cancellation is not $40 billion, but at most $15 billion. In fact, given the  likelihood that some debtors may not qualify for the program, the PV of expected MDRI debt relief is really closer to $10 billion.

In fact, from the standpoint of World Bank and African Development Bank bondholders,  they may well prefer to have their member countries to take them out of these "dog countries."

Indeed, that might even be a very profitable deal for the World Bank,  since its cost of funds  is not the 3-3.5 percent paid – if and when  they pay -- by these low-income debtors, but at least 4.7 to 5 percent. Assuming that the members of the World Bank’s Executive Board will honor their pledges, exchanging a stream of highly-uncertain debt service payments from these benighted countries for $10 billion  to $15 billion of cold hard cash may look like a pretty good deal for the Bank.  Certainly it is better than having to play bill collector to all those nasty hell-holes.

And I bet you thought “debt relief” was all about generosity!

VI.  Summary – A Modest Proposal

So what are the key lessons from this saga for would-be debt relievers? And where should debt campaigners focus their energies now?

1. Beyond the BWIs.

As we’ve argued, it is no accident that twenty-five years after the debt crisis, some of the poorest countries on the planet, as well as many middle-income countries, continue to be struggling with their foreign debts. 

If we accept the basic premise of debt relief – that debtors who have become hopelessly in debt  deserve a chance to wipe the slate clean, once and for all,  then our conventional approach to debt relief, as administered by the IMF, World Bank,  the US Treasury, and the Paris Club, is a failure.  Not only has it failed to deliver the goods, but it has also had very high operating costs, in term of  delays, administration, and excessive conditionality.

Evidently it was not enough that so much of loans that these countries borrowed was wasted, stolen and laundered right under the noses of our leading banks. Debtor countries were then expected to jump through elaborate BWI policy hoops, testing out all their favorite policy prescriptions in order  to avoid having to continue paying for it for the rest of their lives.

In particular,  the huge World Bank and IMF bureaucracies  have proved to be far better at rationing  debt relief than at  making sure that impoverished countries don’t get up to their eyeballs in debt in the first place.

Indeed, Russia alone – which is itself still heavily-indebted  --  has been far more generous and expeditious  with developing countries than the BWIs.
If we are really serious about providing substantial amounts of debt relief, we will to find or design new institutions to administer debt relief. 

2. Beyond Narrow Debt Relief.

It not really surprising that First World governments and the BWIs tend to side with international creditors -- as, indeed, governments have often sided with landlords, enclosers, gamekeepers, slave-owners, and other propertied interests.

What is surprising is that, despite the very high stakes for developing countries, and the availability of so much potential mass support for a fairer solution, the debt relief campaign has been so ineffective.

This is no doubt partly just because it is difficult to sustain a global not-for-profit campaign across multiple activists and NGOs. It is also because the campaign faces powerful entrenched interests.

But another difficulty may be of our own making. Compared with the dire needs of many countries and the sheer volume of “dubious debt” and capital flight, we believe that the debt relief movements’ demands have simply been far too meek.

To make a real difference, the debt relief movement needs to get much tougher on two  closely-related  but necessarily more contentious aspects of the “debt” problem:

(1)  Dubious debt, contracted by non-democratic or dishonest governments and wasted on overpriced projects, shady bank bailouts, cut-rate privatizations, capital flight, and corruption. As noted earlier, my own rough estimate is that such debt may account for at least a third of the $3.7 trillion of developing country debt outstanding. 

(2) The huge stock of anonymous, untaxed  Third World flight wealth that now sits offshore – much of it originally financed by dubious loans, as well as by resource diversions,  privatization rip-offs, and other financial chicanery. 

Most of this wealth – estimated at  $4 trillion to $5 trillion for the Third World alone – has been invested in First World assets, where it generates tax-free returns for its owners and handsome fees for  the global private banking industry.

Obviously the sums at stake here are much larger the debt relief campaign has tacked so far. The issue also affects middle-income debtor countries as well as low-income ones. Finally, it also begs the question of the on-going responsibility of leading private global financial institutions, law firms, and accounting firms that built the pipelines for Third World flight capital, and continue to service it.  Since the 1980s, several of these institutions have become many times larger and more influential than the World Bank or the IMF.

If the debt relief movement had the will to tackle such problems, there is much that could be done.

For example, we could imagine:

(1) Systematic debt audits, and a global asset recovery institution that helped developing countries recovery stolen assets;

(2) Revitalization of the “odious debt” doctrine,  which specifies that debts contracted by dictatorships and/ or spent on non-public purposes or personal enrichment are unenforceable.

(3) Promotion of  international tax cooperation and information exchange between First and Third World tax authorities – including as one early step the creation of a “Tax Department” at the World Bank, which doesn’t even have one!

(4) Codes of conduct for transnational banks, law firms, accounting firms, and corporations, prohibiting their active facilitation of dubious lending, money laundering, and  tax evasion.

(5) The enactment of a uniform, minimum, multilateral  withholding tax on offshore “anonymous” capital – the proceeds of could be used to fund development relief. 

Many other  ideas along these lines are conceivable. Obviously a great deal of organization and education across multiple NGOs would be needed to tackle even one of them. But the most important requirement is nerve – the willingness to move beyond the debt movement’s all-too-narrow focus, to tackle the real issues in this arena.

3.  The Limits of Debt Relief

Earlier in this essay, we  expressed serious doubts about the "more sand,  same  rat-holes" approach to wiping out debts, increasing aid and "ending poverty."

As we argued, most of the prime candidates for debt relief would also have great difficulty in managing it. This skeptical viewpoint has recently received even more support -- there are disturbing reports that the corrupt leaders of poorly-governed, resource-rich countries like DR Congo and Malawi  are squandering the debt relief that they’ve recently received on fresh rounds of dubious borrowing and arms purchases.

The fundamental problem, glossed over by many debt movement campaigners, is that combating poverty is not just a question of malaria nets, vaccines,  and drinking water. Ultimately it requires deep-rooted structural change, including popular mobilization, and  the redistribution of social assets like political power, land, education, and technology. These are concepts that  BWI technocrats, let alone film stars and rock stars, may never understand.

On the other hand, it remains the case that poor people in debt-ridden countries are in dire need of almost any short-term relief whatsoever.  In that spirit, it would be wonderful to see the debt movement,  the G-8, and the BWIs join hands just one more time and finally deliver on their long-standing rhetorical commitment to deliver substantial debt relief. 

As we’ve just seen, the 1.6 billion people who reside in heavily-indebted developing countries are still waiting.

***
(c) SubmergingMarkets, 2006

August 19, 2006 at 01:23 AM | Permalink | Comments (0) | TrackBack

Friday, July 08, 2005

"PICTURES OF FOOD?"
The G-8's Incredible Deal
James S. Henry

Glasshalffull"Have we just been invited to dinner and served pictures of food?"

Aging poverty rockers Bob Geldof and  Bono are apparently quite satisfied with today's G-8 announcement on aid, trade, debt relief, and global warming.

Sir Bob, 51, called it "a great day...Never before have so many people forced a change of policy onto a global agenda."

20030522t152603z_01_lon02d_rtridsp_2_briPaul Hewson (Bono), 45, butchering a quote from Winston Churchill,  remarked that he "would not say this is the end of extreme poverty, but it is the beginning of the end."

On the other hand, the global NGOs that follow the subjects of debt, development, and trade reform most closely disagree vehemently.  For example:

  • Friends of the Earth UK  said that on the issue of climate change, the G-8 accord represented "more talk, no action...a very disappointing finale."
  • ActionAid said of the deal,  "It is still too little, too late, and much of it is not new money. Fifty million children will die before the aid is delivered in 2010."   

So whom are we to believe? 

Should we believe the NGOs that are full-time specialists in these issues, but also,  in a sense, have a vested interest in the glass being perpetully half-full? 
Ibn0001l
Should we believe the professional celebrities and politicians who also have a huge stake in the equally-curious notion that the way to "end poverty" is rely on their episodic cycles of concern and their undeniable ability to periodically whip us all into a guilt-ridden frenzy?

Or should we and the world's poor perhaps begin to do some thinking on our own about what "ending poverty" really means, and how to go about it?   

 

MORE LATER

July 8, 2005 at 02:16 PM | Permalink | Comments (1) | TrackBack

Thursday, January 06, 2005

Letters from the New World #7:
“Post Office Manners”
Denis Beckett (JBG)

DenisbeckettFive or six customers were waiting in the Post Office line. Everybody was in the second half of life’s span. Everybody had had the vote since before ’94. Nobody was joyous.

I had tried to be slightly joyous. I offered a greeting when I arrived, but people mmmphed in that embarrassed bourgeois manner, scandalized at unlicensed breaching of queue silence. So I like everyone was a stalagmite, separate to the other stalagmites, waiting in our separate spaces while the counters proceeded with lo-o-o-ong transactions.

Then a girl came in, a black girl in a school uniform. She looked around in the manner of someone in an unfamiliar place.

“Excuse me”, she said to the tannie  (Afrikaans for 'Aunty') at the back of the queue, “Where do I go to send a parcel?”

If she’d whispered it  the tannie might have whispered back. As it was, she said it out loud, unconcerned about putting the tannie on the spot in front of the other members of the queue.

So the tannie had an attack of Middle Class Frost, and couldn’t say anything. She gestured the girl in behind her. “Thank you”, said the girl, without irony.

And we stood. The big batch customers up front were taking time. After a while, the girl said, to no one in particular, “Excuse me, has something gone wrong or do we just keep on waiting?

Everyone laughed a bit, including the clerks behind the counter. Several people mumbled something reassuring. One of the clients at the front turned and apologized for the hold-up. Ostensibly he was apologizing to the girl, but in fact he was apologizing to us all.

We felt better that he did apologize. We had been working up a resentment. Had it not been for the girl, he would never have made the apology. He would have walked out of there with all our glares daggering into his back. But now the glares were defused.

We resumed waiting, but it was different. The stalagmites were thawing. The tannie at the front of the queue called to the girl: “Don’t you have to be back at school by quarter past?” The girl said “Yes, but if I don’t send it now my granny won’t get it in time.” The tannie at the front said: “You’d better come up here, then. I’m sure these nice people won’t mind.” And she beamed a beam at the rest of us in the queue, and people nodded and murmured assent and beamed reciprocal beams.

The girl moved up the queue, politely thanking each person as she passed them. As she got to the front, the apology guy finished and went off with waves and goodbyes. The girl took his place and started explaining her needs in Sotho, calling the clerk “ntate” (Mr.) in every sentence. Apparently it was fairly lousy Sotho, because the clerk switched to English – he was explaining express services – and she was clearly relieved.

Meantime, the tannie at the front explained that she had recently retired from the school. The guy behind her said yes, he thought he recognized her; she had taught his child. Conversation spread. It’s not that everyone was vocal, but that the stalagmites had melted into a brand of community. The feel had been isolation; it became connection.

When the girl finished she did a curtsy to the ntate at the counter, a curtsy to the queue, thanked everyone, and hurried off. The rest of us stood differently now, relating better to each other, better even to the clerks.

Funny, I felt, how in 1994 and for a while beyond, we in the pale gang thought that the big change was an act of generosity; that we were leaning down, holding out the hand of friendship to pull them up.

These days, I find it humbling and thrilling to see ever more evidence of the two way street, the ways that white lives are enhanced by living in Africa.

èèè

© Denis Beckett, Submerging Markets™, January 05

          dbeckett@global.co.za

January 6, 2005 at 04:27 PM | Permalink | Comments (0) | TrackBack

Tuesday, January 04, 2005

SO-CALLED “NATURAL” DISASTERS
Part II. The Need for a Global Disaster-Relief Agency
James S. Henry

Download pdf

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So far, the Boxing Day 2004 Sumatra tsunami is still not quite the most destructive earthquake-related disaster in history, but this may soon change.  Until now, the casualty records have been held by the 7.8 Richter-scale earthquake that leveled Tangshan, China, in 1976, claiming at least 244,000 lives, and by the 1556 earthquake in China’s Shanxi province that claimed 830,000.

However, the Sumatran quake has already resulted in more than 150,000 deaths, including 94,081 confirmed dead in Indonesia, nearly 9000 dead or missing in Thailand, 15160 in India, (andup to 20,000 more in the Andaman and Nicobar Islands), 44,000 in Sri Lanka, and 396 in Tanzania, Somalia, the Seychelles, Madagascar, the Maldives, Burma, Malaysia, and Bangladesh. Furthermore, the latest reports from UN observers in the region indicate that even these death tolls may grow “exponentially.”

For the bankers and investors in the audience, the purely economic impact of the Sumatra tsunami is expected to be relatively slight, since most of its victims were indigenous poor people in remote areas, and the region's tourist industry will quickly recover. Japan’s 1995 Kobe earthquake, in contrast,  caused more than $100 billion of property damage. 

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However, in terms of lives lost, injuries, displaced people, and damage caused beyond the boundaries of the country where the earthquake originated, Sumatra is already a record-setter. While other tsunamis have taken lives outside their countries of origin, this one’s long-distance impact has already taken more lives in more countries than all other tsunamis since 1800. The potential human and geopolitical impact of all this is much more significant than the destruction of over-valued Kobe high-rises.

In other words, this is one of the most profound transnational disasters ever. It is therefore not surprising that, as discussed below, it has already commanded an overwhelming global response from the world's aid donors -- at least on paper.

_40684617_gloves_1 For the moment, at least, the developing world may have finally succeeded in capturing our attention, if by nothing more than the sheer power of its own suffering.  Perhaps we will finally now come to understand that both the relief and the prevention of such disasters are appropriate global responsibilities.

We may also wish to reserve some of our benevolence and good will for the victims of more "routine" Third World perils -- for example, the two million children who die from drinking dirty water each year, the 1.6 million people who still die each year from tuberculosis, and the 1.2 million who die from malaria. These continuing disasters may not be as dramatic, sudden, and visible as tsunamis and earthquakes, but they are no less worthy of our concern.    

TO THE RESCUE?

Après le fait, the world community has mounted a huge relief effort to provide clean drinking water, food, medicine, energy, medical care, and temporary shelter for 5 million displaced people.

The most rapid progress has been made on fund-raising.  In one week, 45 governments and international institutions pledged  more than $3.2 billion in humanitarian aid, more than the world spent on all such disasters from 2002 on. The tsunami pledges so far include an incredible $680 million from Germany, $500 million from Japan ($3.91 per capita),  $350 million from the US ($1.19 per capita), $182 million from Norway ($39.13 per capita), $96 million from the UK ($1.59 per capita), $76 million from Sweden ($8.39 per capita), $76 million from Denmark ($14 per capita), $250 million from the World Bank, $175 million from the Asian Development Bank, $309 million from other EU member countries ($1.06 per capita), $66 million from Canada ($2.06 per capita), about $60 million apiece from Australia ($3 per capita) and China (5 cents per capita), $50 million from South Korea, and $25 million from Qatar. Somewhat less generously, Saudi Arabia and Kuwait have each contributed $10 million, New Zealand $3.6 million, Singapore $3 million, Venezuela, Libya, Tunisia, and UAE $2 million, Turkey $1.25 million and Mexico $100,000.

Furthermore, there are also discussions underway among G-8 countries to provide debt relief for Indonesia, Sri Lanka, and the other victim countries, which might yield another $3 billion a year -- so long as these countries agreed to spend it on aid for tsunami victims.

Three days after the quake, President Bush had promised just $35 million. As several observers noted, that was just 12 cents per capita, less than 10 percent of Canada’s per capita effort. As Vermont Senator Patrick Leahy said, “We spend $35 million before breakfast in Iraq.”

Furthermore, in 2004, the US Congress had provided $13.6 billion to Florida’s hurricane victims, 5.6 times more than the $2.4 billion that the US spent on all global humanitarian assistance that year. Colin Powell rebuked the critics in public, reminding them that the $2.4 billion was 40 percent of the entire world’s budget for humanitarian relief in 2004. Apparently he also quietly lobbied the President to increase the official US aid.

Meanwhile, in addition to the pledges of official government aid, more than fifty private relief agencies have also pitched in, from Action Against Hunger, CARE, Catholic Relief, Doctors Without Borders, Islamic Relief, Oxfam, the International Red Cross, and Save the Children to UNICEF, World Action, and WorldVision.  The  American Red Cross alone reports that it has already received more than $79 million in private aid pledges for tsunami victims, while CARE US has received $3.5 million, Doctors Without Borders $4 million, Save the Children $3 million, Americares $2 million, Oxfam US $1.6 million, Catholic Charities $1.1 million, and World Vision $1 million.

Private donors from European countries have also been exceptionally generous. For example, Swedes’ 9 million people have contributed more than $60 million, in addition to the $76 million that their government has offered – more than $15 per capita. And Norway’s 4.6 million people have raised nearly $33 million in private donations, in addition to their government's $180 million -- a $46 per capita global record for tsunami relief.

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...THE PAPER THEY’RE PRINTED ON?   

Unfortunately, the historical record shows that such official government disaster aid pledges are cheap -- they often do not result in “new money,” and many countries actually renege on their official pledges completely.

For example, in the case of Iran’s Bam earthquake in December 2003,  40 donor countries also responded to a similar “UN flash appeal,”pledging $1.1 billion of aid. However, one year later, less than 2 percent ($17.5 million ) of that has been forthcoming.  Most foreign aid workers and journalists came and went in less than a month, and Bam’s reconstruction problems have long since disappeared from the headlines.  While significant progress has been made in restoring basic services like water and electricity, most of the city’s 100,000 former residents are still unemployed and living in tents.

Such reneging by the world community has also been the pattern in most other recent disasters, including Mozambique’s 2000 floods,  Central America’s Hurricane Mitch in 1998, and similar crises in Somalia, Afghanistan, and Bangladesh. 

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We will just have to see whether the victims of the Sumatran tsunami  experience something similar. UN Secretary General Kofi Annan has predicted that it will take a decade for many of the countries affected by the tsunami to recover.

ANOTHER AD HOC RELIEF EFFORT?

Each time there is a crisis, the world’s aid organizations have to scramble to pass the hat.

The outpouring of all this assistance for the tsunami’s victims on short notice has been impressive.  But perhaps we should not be so proud of ourselves. The reality is that this effort has been yet another ad hoc, “aid pick-up-game," where the world waits until there is already a life-and-death crisis with millions of people in peril to swing into action, raise money, and rush assistance to the front lines.

This reactive approach has many unfortunate side-effects:

~       Each time there is a crisis, the world’s aid organizations have to scramble to pass the hat,  even as they are also scrambling to organize assistance. 

~       The actual delivery of relief on the front lines is much slower than it needs to be.

As usual,  in the case of the Sumatra tsunami,  most of the victims are located in remote areas with poor transportation, sanitation, water, and health care systems,  and many other problems. Several key regions – in this case Indonesia’s Aceh province, Sri Lanka’s eastern regions, and Somalia – also have active guerilla movements or local warlords. Some countries -- India, in this case – have also insisted that they don’t need any foreign assistance, showing more concern for nationalism than their own people. 

However, when it comes to disaster relief, all of these problems are just par for the course, and predictable. What is inexcusable is the world has once again had to organize yet another massive relief effort from scratch.

One result is that in most of the affected countries,  it has taken more than a week to get medical aid and substantial quantities of  food, blankets, and clean water – to the victims. In a situation where hundreds of thousands are injured and each incremental day costs hundreds of lives, only Finland and Norway had relief planes in the air by Tuesday December 28, two days after the disaster. Most other donors needed a whole week.    

~       Given the semi-voluntary nature of the relief process, national interests, domestic politics and media exposure play an excessive role in deciding how much aid is given, who manages the assistance, and how much goes to any particular crisis – as compared with raw human need.

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~       One by-product of all this was last week’s unseemly spectacle, where donors like the US, the UK, and Japan conducted a veritable public auction for the value of their aid pledges. The results may have little to do with actual aid requirements. We can only hope that this time around most the pledges will be honored. 

~       There is a tendency for global aid efforts to be limited by the media’s attention span – as Bam’s victims, the residents of Sudan’s Dafur region, and the victims of other disasters have learned the hard way. When the number of “new bodies”  tapers off, so does the attention – and the aid.

THE NEEDS FOR A  GLOBAL AID ORGANIZATION

If global humanitarian aid were run on a more business-like basis, 

~       There would be an ample global “reserve” set aside for such emergencies. This would be funded by a global tax in proportion to objective measures of donor capacity like population size and wealth.

~       In case of an actual calamity, we would not try to assemble “aid brigades” on short notice from dozens of different organizations all over the globe and expect them to work well together under impossible conditions. There would be already be a solid global organization in place, ready to respond rapidly, with coordination agreements and contingency plans already worked out with local governments.

This organization would also have basic stocks of transportation equipment and relief supplies pre-positioned in key regions of likely need.  After all, the US military alone now has 890 bases around the world that are on ready-alert, prepared  to fight wars at a moment’s notice.  The world community has zero “aid bases,”  prepared to fight to save human lives at a moment's notice.

Given the increasingly global nature of  so-called “natural” disasters, the current approach to global humanitarian relief is no substitute for a permanent, well-funded, global aid organization.

èèè

© James S. Henry, Submerging Markets™, January 05

http://www. submergingmarkets.com

January 4, 2005 at 04:00 PM | Permalink | Comments (1) | TrackBack

Sunday, June 27, 2004

"Letters from the New World:"
Fighting Corruption at Eye Level in Nigeria

About Denis Beckett

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Whenever we talk Nigeria, we talk corruption. The two go together. Finland, ice and cellphones. Israel, strife. Australia, complacency and kangeroos. When you talk Nigeria, corruption is the first thing that comes up.
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Try it. Tell people “I’m going to Nigeria.” Four out of five responses will give you detail, usually second-hand, about the necessity of spreading your dollars through different pockets in different denominations. From there they’ll go into horror-stories about corruption.

I found my first trip to Nigeria challenging. Scary, too, but that was a different thing. When the captain said: “We’re commencing the descent” I clutched my wallet. The scare starts fading once reality replaces rumour, but the challenge doesn’t fade at all.

Corruption is one of the main reasons why Africa spent its first half-century of liberation heading, on statistical averages, backwards. Another major one is Indigenisation, Transformation, or whatever the name is for shoving wrong people into wrong roles. Indigenisation is tricky to deal with, and the real answer still awaits.
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Corruption is not tricky at all. The simple answer is: don’t do it. To me that’s the sole answer. It’s ingrained. I can’t pay a bribe, any more than I can kill an animal or fling a bottle. The neurons are just programmed another way. Which poses a certain fluttering of the pulse when one is landing in Lagos, stocked high with dire warnings. But I remind myself that visitors to Johannesburg, too, are warned direly about our corruption, whilst I who live in Johannesburg remain a virgin after all these years – apart from sandwiches and cold-drinks.

Initially a little teeth-gritting is required, to take the same approach to Lagos, but it settles. By the time the first guy outright demanded a bribe (“because I am the one who is in charge of your baggage, heh, heh, heh…”) I was emboldened. All he got from me was two short traditional words.

I recognise that it’s hollow to sound holy when all you’re risking is a suitcase of used clothes, or the R500 fine for phoning while you drive. I admit I have no bosses to sack me if I fail to secure the contract,
no shareholders to re-deploy me as Deputy Manager of the Jammerdrif depot.

Still, the principle is not much different: Most times that you give the bribe-seeker short words he backs down. The times he doesn’t, it’s better to suffer the consequences than to hammer another nail into the coffin of your continent’s aspirations. In which light, the way that the going-into-Africa discussion usually plays out can be depressing.

It starts well, invariably. “We’re all Africans now, isn’t it wonderful. And you should see how much good we’re doing!”

They are, too. And it is spectacular, often. On Monday the housewives of Ndola are buying scrawny ox-shank, little more than bone with hair, chowed on for a week by 10,000 flies. They’re buying baked beans in rusted tins, a year after sell-by. They’re paying three times the price that their privileged southern sisters pay for first-class merchandise at our fancy Cresta or Cavendish supermarkets.
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On Tuesday the new South African supermarket opens its doors. By Friday, Ndola is dancing to a new tune. The city is galvanised. Everybody has to give service, give value, wake up. On a March visit to a provincial capital, the dinner options are a suspicious unnameable stew on a sweltering dusty roadside, or a two-star menu at a five-star hotel with the seven-star tariff designed for the expense accounts of the aid brigade (who keep the aircon on frigid to remind them of home). In April a South African chain introduces middle-class eating at middle class prices. By July the city is holding its head higher.

Similar processes occur in every industry from brick machines to water meters. Good is being done, no two ways. But then the question the question comes up: “and, er, ahem, how do you handle the matter of adaptation to local mores?” There is a common answer to that question: “Oh, no, no, no. No corruption for us. We know that corruption causes ruin and destruction. We have no part in it, except of course when absolutely necessary.”

There is also the increasingly fashionable answer: “You know, we do have to grow into African ways. The time for arrogance is over now. We must mature into an acceptance that our sectional traditions are not universal.”

Then there is the answer that nobody gives unless he’s absolutely certain you are never going to quote him: “Why should I worry? That country is a total stuff-up anyway. If I can give some guy a million rand and make ten million in return, what do you think?”

Finally there is the still small voice that says: “No, on no account do we do it.” You hear that voice not often, and believe it less often. When you do believe it, perhaps because you know the people concerned especially well and repose in them a special faith, it is jolting indeed to find that the rumour factory is thick with alleged inside tales that place your faith under constant question.

The net result is disappointing, especially at the times that I am revelling in the magnificent welcome that tropical Africa addresses to Seffricans of the paler kind. Tropical Africa addresses magnificent welcomes to most people in most circumstances, but they have an added knack of making the whiteys from “South” as they call it, feel like a long lost brother.

You’re taken as a member of the family – a fairly pushy member, perhaps, rich in annoying habits, but in some way one of us, something more than solely a buccaneer on the profit trail. You’re a curiosity factor as well, and you’re assumed to be – potentially, at least – a handily systematic sort of character, the long lost brother who maintained the household inventory and made sure the insurance premiums were paid.

It’s a delightful combination. Not for nothing does every second SA expat go on and on about being wanted, being needed, being befriended, being loved (in the intervals between going on and on about not being robbed).
corruption

The prospects are wonderful, moving, emotional. A continent actually moving upward, after fifty years of empty talk about moving upward; moving upward and forward and with us, us, the once untouchable white South Africans, in there and part of it, in the engine room, the galley, the bridge, the lot.

Unfortunately that vista gets harder to glimpse as time goes by. Reality intrudes. I look at the heavy hands that RSA brings into the rescue of this or that failing African mine or plant or factory. I look at the hubris “stand aside, mere locals; we’re very friendly, as you see, calling us Jack and Joe and not ‘Bwana’ any more, but we’re in charge again so keep out of our way.” I look at the sickening crass insensitivity; the pulling of rank, sometimes unwitting; the disinterest in learning the barest syllable of even French or Portuguese, let alone Swahili or Hausa; the fervour to adopt every management fad emanating from New York or LA.

The pioneers carrying business to the tropics could and should be our heroes, our champions. Too often they become embarrassments. The many lesser embarrassments could usefully be discussed.

The one big embarrassment is not susceptible to much discussion. A culture of corruption means a pathetic nation; that is no more arguable than that the sun comes up in the east, and a critical mass of pathetic nations means a continued pathetic continent.

There’s sabotage in there.

Some foreign companies that have recently tried to enter Nigeria, like Shell and Halliburton, have apparently been following this well-trodden road to perdition. But there are signs of hope. A few others, like Vodafone, have recently been told by their shareholders to refuse to play at all unless they can play it straight.
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Ironically, behind the closed doors of our cynical business community, it is Vodafone that gets the most ridicule. Indeed, almost wheresoever two or three businesspersons gather together in South Africa these days, one hears: “Look at these wussies, getting their asses whupped in Nigeria; buncha sissies calling themselves an African company, squealing ‘good governance’ because they’ve come short. What business did they have leaving just because they couldn’t play it straight? ”
Vodafone

Somebody’s got this upside-down. The real question we should be asking of is of those who stayed: “Precisely how did you manage to stay on and keep playing it straight?”

***

© Denis Beckett, SubmergingMarkets™, 2004

June 27, 2004 at 10:20 PM | Permalink | Comments (0) | TrackBack

Monday, June 21, 2004

"Letters from the New World (South Africa)."
Denis Beckett
#6:"Soweto Revisited"

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About Denis Beckett

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Note: In the following essay, Denis Beckett, one of South Africa's best-known journalists, and a Submerging Markets Contributing Editor, plays tour guide to a Canadian visitor to Jo'burg, who has tired of its of fancy Toronto-like business district, and asks to see something of Soweto, the famous black township on the city's edge. The Editor has fond memories of singing and drinking with Denis in a Soweto shabeen in the late 1980s. As this report indicates, Soweto is even more vibrant today - apres the garrison state. Denis' latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.

RETURN TO SOWETO

By his sixth day in South Africa, Tony had been shown around Sandton (the high-end business district in Jo’burg) five times. “A fine precinct,” he said. “Not dissimilar to some we have in Toronto.”

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It seemed possible that the glimmer of a hint might lurk inside this information. I cancelled plans to show off certain classy office towers, and pointed to other quarters.

Whereupon began an excellent day. The high point was Soweto, for him because of the dining-out prospects once back in the 30 degrees below; for me because of the great march forward since I was last there. For instance I recall Moroka Park as a shambolic wasteland. Now it’s green and kempt with decorative railings and families sitting in Saturday sun.

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Everyone, evidently, has a doctorate in “Making Foreign Visitors Go Dewy-Eyed.” A bunch of kids fiercely debated the geography of Canada (they all got “north”; debate was whether north of America, Britain or Russia). Adults were hospitable from the start and added an extra notch when the Canadian connection came up. When a kid grabbed Tony’s pen I thought ‘uh oh’, but he was just eager to write our names on his hand.
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Sandton

Miraculously I did not get lost, a pity in a way because getting un-lost in Soweto is throat-lumping; people take such trouble over you. But we did traverse a wider cross-section than intended, which meant lots of exposure to changes like shops looking chic and houses looking bourgeois.

I’ve always felt a gap between the perception of Soweto from the white north – all danger, squalor, tension – and the sight of Soweto close up, which includes life, buzz, flowerbeds. Never more than this time, which made it doubly odd that the most jarring note came at the most sacred ground, the old Mandela home.
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Mandela's House

For his decades behind bars, his house looked pleasant and modest. Now it’s behind its own bars, a massive ugly fence so tight that it seems to be choking the house. Next to it an electricity sub-station would look pretty. The new guardhouse outside is scruffy and boarded, and they hunted down the dirtiest, raggedy-assed flag in existence for their big proud flagpole.

In contrast, the Hector Pieterson Museum (they spell him with an ‘i’ now)put up a good showing. Actual exhibits are stunningly few – a dustbin lid, a desk, some placards and two firmly welded guns – but the arsenal of photography, still and video, is a stomach-punching reminder.
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Hector Pieterson, 1976

And it’s not a caricature; amazing. One expects depictions of pre-1994 life to be, for a while yet, snarling iron-teethed whiteys kicking gentle black choir-boys to pulp; but here, not really. The brutality shows up, all right, and so does the disdain which was arguably more odious and certainly more widespread. So does the extraordinariness of shoving Afrikaans down black throats; the old State writing its death certificate. But dissent is displayed as well, and plain ordinariness.

The net impact on me – and I would think anyone white, wherever they stood in the old days – is a surge of relief. How tiny are our troubles now, compared to the gross contortion involved in keeping our foot on the other guy’s neck.

Hillbrow is populated by West Africans proud of their video kiosks and cellphone kiosks; entirely warm and chatty though less than entirely clear about the origins of their merchandise. In Yeoville, only, were we made to feel like markets – many people definitely wanted to sell us something, but were strangely coy about telling us what. Looked sort of like seedlings in packets. Newtown was spic and span and treed and under-occupied, an asset waiting to be exploited. Downtown is spoiled by litter – gutters are static rivers of waste, and papers and wrappers swirl like after a nuclear blast – but is on the up nonetheless, especially the west side, smarter and more occupied than a while ago.

Thanks, visitor to our shores, for awakening this Jo’burger to his turning world.


***

© Denis Beckett, SubmergingMarkets™, 2004

June 21, 2004 at 05:15 PM | Permalink | Comments (0) | TrackBack

Tuesday, June 01, 2004

"Letters from the New World (South Africa)."
Denis Beckett
#5:"Che Guevara vs. Paul Theroux on Africa"

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About Denis Beckett
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(Note: The following is the fifth in a series of essays by Denis Beckett, one of South Africa's best-known journalists, and a Submerging Markets Contributing Editor. Here, Denis offers his reactions to Paul Theroux's latest "travelogue" on Africa, and compares that with a little-known new release of Che Guevara's African diaries, recounting his experiences forty years ago in Guinea Bissau and the Congo. Denis' latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

CHE VS. THEROUX ON AFRICA

A t an airport bookshop I recently saw a strange paperback called The African Dream, purporting to be Che Guevara’s Congo diary. It had an odd cover and an odd imprint and I took it as a skit. Imagine, pretending that history’s most public revolutionary could have had a secret life in Africa, written up but then hidden away for forty years. Who were they kidding?
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My flight to Kampala was called. I took up Paul Theroux’s new odyssey on Africa and got in the queue to pay for it. At the counter, in mid purchase, annoying the people behind, a whim overtook me. What was this nonsense about Che and Africa? I ran to grab it.

Two hours later my eyelids were heavy with Theroux. It was an okay book, but over-familiar. Once again, I felt, the sleepwalk about Africa. Treatment of it was so orthodox; one-dimensional: plucky poor continent trails behind the march of nations.

Were we horses in blinkers, seeing only centre-field? Africa is about extremes, both extremes. The warm acceptance of a Kampala bus against the social iceberg of a London train is not a trailing-behind, it’s a far-ahead. But when public policy turns farms that provided crops and livelihoods into wastelands, that is not trailing behind either. It’s sabotage, destruction by edict.

In Theroux, true to My Trip To Africa fashion, the glory was half recognised and the shambles half acknowledged. A new view was surely being born somewhere, to break logjams and shed blinkers, but so far the new view was behind a bush, sensed but not seen.

Putting Theroux in the seat pocket I encountered my other purchase, and took it up for a five-minute unravelling before falling asleep.

When we landed I was 200% awake and could not stop reading, even in the passport queue with heatsweat dripping on Che’s words.

Che’s African Dream is for real, and was suppressed. That’s because Che does not say of Africa what a good communist is meant to say, i.e., forward the oppressed. He says, in 244 pages: this place is hopeless beyond belief.

In due course the book will surely become an exhibit in re: understanding Africa. When it does, I foresee two consequences. One, an end to the radical-chic view of Che, replaced by deep respect. Two, a gear-change in thinking on Africa. Today’s issues, like colour coding and alien disposal, will be in Comedy Showcase. All hands will be on deck to get Joe Africa actually moving forward rather than being perpetually assured that he should be moving forward.

But due course is not tomorrow. This exhibit is too sore to behold, as yet. Finishing Che in the Speke Hotel that night, I thought that there’d be plays and movies based on his tale, in years ahead, well ahead, when Africa had become more interested in removing the causes of its inferiority complex than in denying the effects.

***

© Denis Beckett, SubmergingMarkets™, 2004

June 1, 2004 at 06:00 AM | Permalink | Comments (1) | TrackBack

Monday, May 31, 2004

"Letters from the New World (South Africa)."
Denis Beckett
#4:""Kill Bill" Comes to Joburg"

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About Denis Beckett

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(Note: The following is the fourth in a series of essays by Denis Beckett, one of South Africa's best-known journalists, and a Submerging Markets Contributing Editor. Here, Denis takes aim at one of the US' more unsavory exports, its hyper-violent films, as exemplified by "Kill Bill V. 1." This is not exclusively a US problem-- KB's highly-overrated blood-spattered director, Quentin Tarantino, was one of five judges for the Palm d'Or at Cannes this year. Denis' latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

KILL BILL COMES TO JOBURG

You’ve seen Kill Bill on the bus shelters – the blonde star in a grand prix tracksuit with a samurai sword. It’s all over the press, in phrases like “TARANTINO’S TRIUMPH -- PAGES 2, 3, 6 – 7, 10 & 12.” The word “brilliant” appears repeatedly, with superlatives, as in absolutely brilliant, amazingly brilliant, astoundingly brilliant.

The impression I got was of a violent movie, brilliantly handled so as to make the violence a light-hearted, merry kind of violence. Additional brilliance apparently lay in the “referencing” by which the film borrows techniques from prior films so filmgoers can have detective fun whispering “Look, Mabel! That’s from Slicing Off Noses, 1989.”

This was intriguing. If we in the print world “borrow”, we are called plagiarists and sent to the back doors of restaurants. The notion of cute violence left me a bit at sea. And I felt a pique on behalf of local films, to whom local ink is the difference between life and bankruptcy and who beg for attention. Was this Kill Bill that much better? I bought a movie ticket.

I lasted half an hour. I might have managed more if they provided sick-bags like on an airplane, but I’m not sure: I also had a pressing urge to shower, with lots of soap.

There were brilliant bits, I suppose. The gentle way a female voice sings the violent opening song is creepily brilliant. And the blood-splattering seemed sort of brilliantly done, the first dozen or so times. It splattered vividly, anyhow.

But I couldn’t see a basic, special brilliance, or what is brilliant in a mother being blood-splatteringly killed in front of her 4-year-old, or another mother being killed (with splatter) on the bed under which her daughter is hiding. Or in the daughter getting a turn to splat after “luckily”, I quote, discovering that her mother’s murderer is a pederast.

One scene imprinted itself: a male nurse hiring out the body of a comatose female patient, Vaseline thrown in leeringly. It’s effective, I grant, wedging like a gallstone in my memory lobe, but “brilliant”? I see sordid. I see sickening. I can’t see brilliant.

The world takes all kinds. Some people need brutality; it speeds their adrenalin. Fine, they’re welcome; rather have it on the screen than in the street (where if they saw a fraction of Kill Bill they’d be in trauma counselling for ten years.)

But these aren’t the only people. I might be a drip, a sissy and chicken, but I’m not unique. If I feel dirty watching this, so do other people, some of whom have been led to see this film as compulsory viewing, advancing mankind’s frontiers. Some are revolted but embarrassed to be revolted, and scared to admit they’re revolted. I think it’s they who laugh at the foulest scenes. Their heads say that what they’re watching is disgusting, but society says that what they’re watching is brilliant. They feel they must be inferior people, gutless or dull. So they don disguises, outdoing each other’s enthusiasm.

Why does society give them so one-way a message? Could some critics be caught in the same syndrome: “if I don’t enthuse over this film I’ll be derided as an inferior person, gutless or dull”? Even the few who denounce, denounce with escape hatches: it’s racist, because the white chick chops non-white heads off; or it’s boring, because its plot plods. Is there a taboo against saying what many viewers surely want to say, that the film is demeaning and psychopathic, and to wish to puke in your shoe is a healthy response?

I think something pathetic is on the go. Once, reviews had to uphold motherhood and apple pie. You couldn’t break out. When breaking out first became permissible, it was called freedom. Now the breaking out has become its own new prison. You don’t dare be seen to not push limits. People will think you’re off the pace.

It’s okay that weird tastes are in the world. There always have been. But that the taste for beauty, for honesty, for integrity, for humanity, for the things we inwardly want… that that taste is now a furtive thing and hidden, is wrong.

***

© Denis Beckett, SubmergingMarkets™, 2004

May 31, 2004 at 07:46 PM | Permalink | Comments (0) | TrackBack

Monday, April 26, 2004

426."Letters from the New World" (South Africa)
Denis Beckett
#3: "Hair Cut."

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(Note: The following is the third in a series of "Letters from the New World" from Denis Beckett, one of South Africa's best-known journalists, and our newest Contributing Editor. His latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

HAIR CUT

Scared? No, not scared, not really. You can’t be scared of a barber. Can you? True, this (South African) Shavathon was invented by sadists. True, going in wasn’t easy, past streams of bald guys coming out, clutching their heads in shell-shocked daze.

But that’s not “scared”, surely, so much as rational. A lifetime of long hair gives a ou identity, right? It instills a persona, a self-image, which has never been short hair, let alone no hair. Now you’re about to make the brushcut guys look like hippies. For sure you aren’t overjoyed.

But not “scared”, please. “Lunatic”, maybe. When they start to cut, red-alert clangs. This is the only mirrorless barber seat you ever met. Your head gets cold, in a way you never knew. Clumps of you slide down your shoulders, clumps not of plain untidy excess, but of what has been part of you since you were in nappies....

Your friends who did the easy option, the one-day green dye, are hosing themselves, pointing at you and high-fiving and slapping their sides like at Barry Hilton on the cuzzin routine.

There comes an instant that you can not believe this thing that you are doing. You feel central processing unit contacting your leg muscles with the instruction to bolt. But before the message downloads, the volunteer barber is shaking out the towel. They’re speedy here, whipping off the entire woolsack in 10% of the time that a real barber with mirrors takes to do a trim.

Rub the head, feel strange, be relieved by the touch of a film of stubble. It’s short, but it’s hair. Then the sadists guide you to the blades.

The blades. So far has been only Army-short. Kojak is yet to come. The blades are gonna abolish every wisp, everything but eyebrows.

You can choose to duck this, but a mad instinct says go the whole hog. Partly, there’s testosterone and rank order. The Kojaks are main manne, army-cuts come second and green-dyes are but honorary members of the human race. The other part is duty. Companies pay money to the Cancer Association for every bald head. Plus the world record, 55 000 heads in a day, is up for challenge, and it’s held by… Australia.

And hey, anyway, it’s just this once.

So the shaver lady sprays the lather. This time, it does take time. A head is a bigger thing than you think. A head-shave covers the acreage of six or ten face-shaves, and is a bumpier ride.

The end is shock. A hand ascends to explore, and recoils in instant horror. This is no longer foreign hair on a familiar pate. This is horror-story, feeling not like a head at all, any head, let alone the personal private head you’ve known since youth. It’s a lumpy sticky thing, foreign to the touch, as if a mother dinosaur plonked a reject misshapen egg on top of your neck.





You can choose to duck this, but a mad instinct says go the whole hog. Partly, there’s testosterone and rank order....The other part is duty. Companies pay money to the Cancer Association for every bald head. Plus the world record, 55 000 heads in a day, is up for challenge, and it’s held by… Australia.



A ou gets a skrik, but not as much as when the lady says: “there you are then. It nearly always grows back, even at your age. Just scrub the skin or it can grow inward.”

Nearly always? Can grow inward? This night was poor in sleep; strong in images of traumatised dead hair refusing to re-start, of trapped stalactite strands clutching downward and strangling the brain.
Furthermore, resting a newly bald head on a pillow is like rolling a brick on a croquet lawn. Hair is a lubricant; one of its less known virtues. Shining and slithery as the naked noggin appears, it glues to the
pillow. Each toss and each turn is a sticky, jerky, jolt.

But nightmares end. The second day the dogs stopped barking. By the third I could enter my bathroom without startling at the ugly bald stranger. By the fourth I ceased to instinctively reach for the hairbrush after the morning shower. Now my family are saying “quite nice, really”, and I’m relishing seeing the world from a short-hair vantage-point.

Sixty thousand bristly heads are walking around town feeling interconnected and a tiny bit smug. We were arm-twisted into it, yes, but whatever the motives, our haircuts brought packets into cancer support and brought us a flash of solidarity with a deeply real cause.

We give each other friendly recognising nods to say “we shared that scared moment, which we won’t admit to.” And the Aussies have come second at something.


***

© Denis Beckett, SubmergingMarkets™, 2004. All rights reserved. No reproduction without express consent of the author.

April 26, 2004 at 10:54 PM | Permalink | Comments (0) | TrackBack

Saturday, April 24, 2004

424."Letters from the New World" (South Africa)
Denis Beckett
#2: "Walk Tall."

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(Note from the Editor: The following is the second in a series of "Letters from the New World" from Denis Beckett, one of South Africa's best-known journalists, and our newest Contributing Editor. His latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

WALK TALL

In 1973 no-one was as non-apartheid as we all now like to think we were. Hiring the Smuts farm at Irene for a black staff picnic was a mission. Blacks? Little old United Party people in Moth badges wrung hands for weeks. They talked about “the natives”, and “raising expectations”.

But people were moving forward, groping, in that way they do. Permission was finally granted, subject to a stack of promises and guarantees nine yards high.

And everything went fine. Until lunchtime in the meat queue, when Walk Tall got aggrieved. In his view he’d been given an undersize portion, by a little old UP lady.

As the name suggests, Walk Tall was a toughie, a towering strong guy with attitude. He was also afloat in ingested substances. He drew a knife as long as a thigh, and informed the lady that he would cut off her ears to make up his protein.

At this point, you can imagine, picnic day came a little unstuck. Monday morning Walk Tall was contrite as well as hung over. I was sorry to sack him; normally he was a dynamo, and full of personality. But he had to go.

Fast forward 15 years. I’m in Anderson street, back end of town. On foot. It’s winter, it’s dusk, the air is thick with smoke. I’m alone, very alone. I’m vulnerable.

Suddenly there’s a gang around me. Instantly, I know this is farewell to my possessions. Perhaps it’s farewell to blood and breath too. Then I see that one of them is Walk Tall. My heart clangs on the tar. Day of vengeance! I telepath goodbyes to my loved ones.

Walk Tall stares, holding his pals back. Then he roars out my name. To my astonishment he’s not roaring in fury, but in tones you’d use for a long-lost brother. He grabs me – I get a close-up of a wicked blade, sideways on – and smothers me with a huge hug.

I’m introduced to the pals. Knives vanish and all four walk me to the Carlton Hotel. “You can’t walk alone!” says Walk Tall. “There are bad people here!”

On route he says he hasn’t had a job since I fired him. Once in the Carlton’s light I risk the question: doesn’t he perhaps bear ever so slight a bit of, uh, anger?

Walk Tall cracks up like I’ve made a great joke. “What! Angry! At you! No, you had to fire me! And you shook my hand!” The gang returns to the night, waving.





Having latched on to the high ground,Walk Tall has made it his life. You can practically see the halo. But this old world is full of rabbit punches. A year ago he got a job. A month ago he was told to take certain steps in re a collectable debt. In his old incarnation these steps were well in the day’s work. But this is the new moral Walk Tall. He says “I don’t do assault”, and he quits. And who gets the rap? Yeah, right. Me. “You’re the one who told me to stop doing crime, and I listened to you so now I have nothing to eat.”



Fast forward again, 12 years to 2000. Walk Tall re-appears. He has adventure stories that make Sinbad look stay-at-home. He also has a shining moral high point of his career, viz, having not killed me. His reasons have become complex enough to baffle Freud, wild flights into love and hate and black pride and conquering demons. But the outcome is clear. He has come to see Not Killing Beckett as a Nobel-deserving achievement, or at minimum worthy of eternal thanks.

I mention the mundane fact that six billion other people have also, to date, not killed me, but he is unfazed. He says 5 999 999 999 never had to do anything to not kill me; he alone stayed the knife. It is a bit different, I grant, but no way am I in lifelong debt because he aborted a crime he should never have started. He shakes his head, saddened that such callous ingratitude exists.

That subject remains an impasse, though we’ve tried several times to work it out. Once was on radio where he spoke grippingly about crime and white victims, the mugger’s eye view. People couldn’t stop listening. One guy missed a plane.

Having latched on to the high ground, Walk Tall has made it his life. You can practically see the halo. But this old world is full of rabbit punches. A year ago he got a job. A month ago he was told to take certain steps in re a collectable debt. In his old incarnation these steps were well in the day’s work. But this is the new moral Walk Tall. He says “I don’t do assault”, and he quits.

And who gets the rap? Yeah, right. Me. “You’re the one who told me to stop doing crime, and I listened to you so now I have nothing to eat.”

He hopes I’ll cough up in return for my unpunctured ribcage. I’ve told him to forget that, but another factor grows: all those parables about mercy and lost sheep and returned prodigals. Isn’t that how we’re supposed to live, giving a chance to a guy who reforms? Why do all the reformed sheep I see seem to be staring at slammed doors? Somewhere there’s an employer-type person who believes in reformed characters or in happy endings or in both, and who might communicate with (the name on the ID), at (Joburg address.)

***

© Denis Beckett, SubmergingMarkets™, 2004. All rights reserved. No reproduction without express consent of the author.

April 24, 2004 at 09:50 PM | Permalink | Comments (0) | TrackBack

Thursday, April 22, 2004

422."Letters from the New World" (South Africa)
Denis Beckett
#1: "Return."

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(Note from the Editor: The following is the first in a series of "Letters from the New World" from Denis Beckett, one of South Africa's best-known journalists. At a time when a great many countries are struggling just to make ends meet and keep hopes for democratic development alive, South Africa has just held its third democratic election in a row. True, it has more than its share of serious challenges, from crime and corruption to inequality, HIV/AIDs, unemployment, and lingering racism. But as Denis' extraordinary eye for individual stories makes clear, it is also a place where a huge number of people of all races are excited to get up in the morning, meet and greet each other, and pitch in together to build a new and better country. That's a spirit that many of us in the so-called "developed world" may well look to with some degree of jealousy. Denis' latest book is the highly-acclaimed Redeeming Features. (London: Penguin Books, 2004.))

RETURN

When she left for Australia, Joy cited all the regular reasons, crime and decline and Africa’s uncertainties. She got a nice job in Sydney, and lots of peace and security, and nobody stole the paper from public toilets, never mind the seats.

But Joy’s six siblings in Jo’burg made much reason for many visits. From time to time she’d get a sense that in South Africa she felt the sun on her face in a warmer way.

She kept it quiet, of course. Men in white coats would come. Aus was for The Chosen..

One day Joy and her laaitie, Luke, were at the jungle-gym at the Zoo Lake. This is a very individual jungle gym. It didn’t come out of a box, with plastic fittings. It came out of a forest, big solid logs. It’s the gorilla of jungle gyms, a cousin of the army’s combat training courses, high on opportunity for kids to break arms and bash heads.

Luke was nervous. This was a fearsome thing, after the park at home in Sydney. That park was lawsuit proof, waxed and pasteurised and shrinkwrapped, certified safety precautions at every hinge.
But as he got into it Joy noticed a strange thing: he was having more fun. In fact, she was having more fun too.

She was enjoying this pre-waxed Africa-type park, and enjoying Luke enjoying it. Also, people greeted Luke, and greeted her, and talked to her, sommer, as in “a stranger’s a friend you do not know”. In the waxed world, thought Joy, that was stuff you heard in church. To walk up in a spirit of “hullo, friend I do not know” … you’d get a harassment charge.

On a train in Cape Town an old man befriended Luke, like a grandad, sharing sweets and games, as if Joy wasn’t there. And the conductor ad libbed. Each time he called the route he gave her a wink and a last line like “and enjoy the ride.” It struck Joy that if his Aussie counterpart broke the rules like that, there’d be disciplinary hearings.

A touring black school group and their teacher include Luke as an honorary member. Joy asks the teacher why. She’s implying: “he pays you no fees and no bonus, why should you bother?” She’s also implying, deeper down: “and what is more he’s not even your, um, race”. The teacher replies: “children are our future”. Full stop.

Joy returns to Aus. After a year there, she tallies how many strangers interacted with Luke. Answer = two. In South Africa, she reckons, it’d be hundreds, mainly of course blacks, the pastmasters, but some of the pale lot as well. That was a thing about SA’s new freedoms; the whites were picking up the good habits of Africa, by osmosis.

Joy mumbles about a return to SA. Everybody says What! You crazy? Not only the Aussies say that, so do Seffricans. She feels very alone. Is she crazy? Someone points her to www.homecomingrevolution.co.za, and she’s astounded. Lots of South Africans are going home. That fortifies her, but people say: “To indulge yourself you’re inflicting crime and decline and dead-end-for-whites on your innocent son.” She says: “No, that’s exactly wrong, it’s for my son, so he can grow up enriched by the human connectivity of Africa.” The chorus: What! You crazy?

Joy knows she’s right, in her bones, but damn, she’s scared. The chorus says: “at least put him in private school”. She can’t afford it. Everyone insists a SA government school will doom Luke to placards on street corners. She nearly chickens out. Then her Jo’burg teacher friend Dale phones to say “you’re hearing junk, you want to be here, block your ears and get here.” She did.

Last week Luke’s government school asked Joy if she could do transport, for an outing. She burst into tears. They were surprised. She explained. She’d love to help with transport. She wasn’t allowed, before. Only designated buses and certified drivers carry Aus school outings. No cowboy stuff like Mom’s Taxi.
“I realised”, says Joy, “that I like the cowboy stuff. I like a world with loose ends. I like a world that isn’t all comfort zone. And I like being required to give. It’s not ideal that so many are in need, but for me it’s better to have to give than to never give. You think bigger.”

You do, hey. You think frinstance that we may never be the world’s richest country or continent, or the calmest, or even the kings of the pitch. But heck, we can be the nicest.

***

© Denis Beckett, SubmergingMarkets™, 2004. All rights reserved. No reproduction without express consent of the author.

April 22, 2004 at 09:55 PM | Permalink | Comments (0) | TrackBack

Friday, March 19, 2004

On the Trail of "Oil-Rush Development" in the Gulf of Guinea

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Eq. Guinea's Obiang"

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Several recent developments in West Africa’s Gulf of Guinea recall our attention to the new “Great Game” that is now taking shape in this region, driven to a great extent by new offshore oil discoveries and exploration fever. totalelf.01.jpg

This region now has the world’s fastest growth rate for new oil reserves, with $5-$10 billion a year being invested to develop its offshore resources. Oil industry experts speculate that by 2010, the seven top oil-producing “New Gulf States” – Equatorial Guinea (E.G.), Sao Tome & Principe, Gabon, Cameroon, Angola, and Congo, plus landlocked Chad -- may account for at least 10-15 percent of the world’s conventional oil and gas reserves, and an even larger share of US energy imports.
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This means that, collectively, these tiny African countries may soon play a much greater role in world energy supply than Nigeria, Mexico, Venezuela, or Iraq.

In addition to raw economics, this shift is also being driven by political factors. The US is eager to free itself from OPEC, especially from dependence on politically-sensitive countries like Venezuela and Saudi Arabia. And alternative sources of supply like the Caspian pipeline, Central Asia producers, and Siberian exports have been slow to materialize. So it is not surprising that the development of Gulf of Guinea energy has recently received high priority, not only in Houston and Dallas, but also in Washington, D.C. As the recent attempted coups against Equatorial Guinea's dictator and Sao Tome's President indicate, they are also receiving increased attention from the world's "oil mafia" and their attendant mercenaries.
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In principle, the region's new oil discoveries should also provide a gigantic windfall to the 41 million long-suffering inhabitants of these otherwise-impoverished West African countries. Their life expectancy now averages just 46 years, and more than half of them still survive on less than $1 per day. There is an unique opportunity for the Great Powers that are most active in the region – the US, France, the UK, China, and Spain, as well as multilateral institutions like the World Bank and the IMF -- to learn from the many previous negative experiences with the impact of oil wealth on development, and establish some “rules of the game” to insure that it really goes to support democratic development.
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Unfortunately, rather than seize this opportunity, these Great Powers appear to be defaulting to age-old imperial practices. They are permitting their corporations to define investment and development strategy for them. With few exceptions, the result is a “winner-take-all” race for the riches, with the region’s corrupt local dictators and tiny private elites dividing the spoils with transnational corporate allies, private bankers, private armies, and other intermediaries.
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There are already many “per-country” accounts of these developments in the Gulf of Guinea. But it is helpful for us to consider them collectively. Among the most important patterns:


  • Increased corruption, militarization, territorial conflict, and political instability, a direct byproduct of the region’s many wobbly dictatorships in the region, the influx of oil dollars, and the growing value that outsiders place on seizing control of the tiny “New Gulf Oil States;”

  • Deeper involvement among oil-hungry powers like the US and China, traditional colonial powers like France, the UK, and Spain, and regional powers like Nigeria and South Africa;

  • A new willingness on the part of the US and other leading trading partners to look the other way at electoral fraud, human rights abuses, and corruption perpetrated by the region’s oil-producing non-democratic regimes.

All told, these patterns do not bode well for the future of democratic development for the “New Gulf States” --- even as the US invests so heavily to bring representative government and stable government to 25 million Iraqis.

Eighty-five years ago, at the end of World War I, when a similar approach was taken by that period’s Great Powers to the division of oil wealth in the Middle East, they could at least plead that they had little experience with the negative consequences of an elitist, laissez-faire approach to oil-rush based development. Today's Great Powers have no such excuse.

***
© James S. Henry, SubmergingMarkets™, 2004

March 19, 2004 at 07:25 PM | Permalink | Comments (3) | TrackBack

Saturday, March 06, 2004

Regime Change Comes to Haiti - Part II: French Hospitality

"Where's Jean-Bertrand? I Hear He's Locked Himself in his CAR!!!"
"France Exchanges Baby Doc for Titid!"
"Aristide Takes Lessons From Bongo, Bokassa, and Bozize in Bangui!"



Pres. for Life Bongo

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Pres. for Life Bozize

Prresident Aristide, ousted from power just a week ago on February 29, has been desperately seeking asylum from his friend Thabo Mbeki, South Africa's President, who probably wishes the whole issue would just go away, but will no doubt grant it -- at least after the upcoming national RSA elections, on April 14. Several other countries in the Caribbean, like Panama and Costa Rica, were also willing to offer asylum. That seems only fair. After all, in the mid-1990s, Panama provided refuge to former Haitian general Raoul Cedras, the instigator of the first coup against Aristide, with his ocean-front apartment paid for by the US Government. In Aristide's case, US asylum was never offered; after all, he had never served in the FRAPH.

Apparently, however, someone decided that it would be more convenient to park Aristide in West Africa, 6200 miles away, rather than in Panama, a country that has regularly scheduled airline flights and is just 800 miles from Port-au-Prince.

Pending South African asylum, then, Aristide was compelled to accept temporary quasi-house arrest in the Central African Republic ("CAR"), a pathetic little submerging market that is even poorer than Haiti. This first-class hospitality was arranged for him by Dominique de Villepin, France's Ministry of Foreign Affairs, and France's favorite West African dictator, Gabon’s Omar Bongo.

As we'll see here, France has a long history of making such "special arrangements" for friends and foes alike -- including, in Haiti's case, a safe haven for "Baby Doc" Duvalier, who ran Haiti from 1971 to 1986, and a nasty, ultimately fatal imprisonment for Toussaint L'Ouverture, Haitii's George Washington, at the hands of a disgruntled Napoleon, who evidently never quite forgave the Haitian for beating his vaunted Army several times over. As Aristide contemplates Bangui's lakes and gardens, at least he can be grateful that he is not freezing to death in a prison cell in the Jura Mountains.

FRENCH HOSPITALITY

One of those who reportedly helped with Aristide's hastily arranged accomodations in the CAR, Omar Bongo, 67, is Africa's second longest serving "President for Life," and one of France's oldest and closest allies in Francophone Africa. He has ruled his impoverished-though-oil-rich country with an iron hand since 1967, with the help of Moroccan body guards and French security experts. As described in SubmergingMarkets™’ recent article on the Elf scandal, in the process, he developed an incestuous, mutually-lucrative relationship with top officials at Elf-Aquitaine, (formerly France’s leading oil company and now part of Total SA), as well as with leading French politicians like Jacque “The Crook.” He also developed private banking relationshpis with leading French and US banks -- including Citibank-NY, where he has reportedly secreted more than $180 million. No sentimental democrat or populist, Bongo has also arranged his country's political system so that he can remain in power until at least 2012 -- assuming that he lives that long, and that the fickle French don't turn on him.

In Aristides' case, according to one report, Bongo was able to prevail on his good friend Francois Bozize, CAR’s former Army Chief and current dictator, to open the door at least temporarily. According to another report, French Foreign Minister Dominique de Villepin called Bozize directly, with just 20 minutes notice, when the plane was already close to landing in CAR, to tell him that Aristide was about to arrive! France and Bongo had helped Bozize seize power from CAR's previous (elected) leader, Ange-Félix Patassé, in a March 2003 coup. That was CAR’s ninth coup since it became “independent” of France in 1960. Bozize remains utterly dependent on French aid, and is undoubtedly very concerned about his own stability, so the CAR is probably one of the few countries in the world where the arrangements for such a "hot guest" could be made so quickly. He and Aristide may have much to talk about. Minding their masters' voice, however, Aristide’s new hosts in CAR have already cautioned Aristide to curb his criticisms of the US and France.

Between his own stints in power, the CAR’s General Bozize was permitted to take up refuge in France-proper. So was Zaire’s Mobutu Sese Seko. So, too, from 1983 to 1986, in Haudricourt, northwest of Paris, was Jean-Bedel Bokassa, CAR's "Emperor" from 1965 to 1979, who also seized power in a French-backed coup. Bokassa, a French Army veteran and the recipient of the Legion d'Honneur and the Croix de Guerre, was famous not only for his 17 wives, for crowning himself Emperor, and for presenting former French President Giscard d'Estaing frequent gifts of diamonds and hunting trips, but also for slaughtering at least 100 school children who had refused to wear the school uniforms that one of his companies had made for them. He then dined on their flesh. (He was later tried for cannibalism.) This proved too much even for France, which in a rare display of progressive interventionism, removed him from power in September 1979.

While in the CAR’s capital, Bangui, Aristide might ask to visit the prison where the slaughter of these children took place in May 1979, as well as Bokassa's huge refrigerator.
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Emperor Bokassa

France also welcomed former Haitian dictator Jean-Claude “Baby” Duvalier with open arms after his 1986 ouster. He and his father had ruled disastrously from 1957 on, helping themselves to a great deal of the country's wealth. So they clearly met France's rigorous admissions standards.

The warm welcome was also facilitated by the expensive villa Baby Doc purchased at Grasse, in the south of France, and the several hundred millions dollars that he diverted to leading French and Swiss banks. After Aristide’s sudden exit, Duvalier, 53, lost no time in voicing interest in returning to Haiti. This led some to suspect that he may have helped to finance the “Haitian contras.” But "Baby Doc" has also gone through an expensive divorce, and may be in poor health, so we will just have to see.

In any case, France has certainly made quite a distinctive contribution to Third World development over the years, by helping to make the world safe for dictators like the Bozizes, Bongos, Bokassas, Mobutus, and Duvaliers -- giving them refuge in continental France until they are ready to return home and, at least in several cases, establish new Life Presidencies. Aristide and his family may never qualify for the kind of hospitality that France reserves for dictators, however. If one is a relatively poor, democratically-elected, populist leader, with no bank accounts and no chateau, but with powerful enemies, one is not welcome in France. After all, what would be the profit in it?......

In Haiti’s case there is also another great French tradtion. This was established by Napoleon's memorable betrayal, seizure, imprisonment, and ultimate murder-by-neglect of Haiti’s national liberator Toussaint L’Ouverture in 1803, in violation of a promise of safe conduct. When questioned about this years later, when Napoleon himself had been imprisoned on St. Helena, he remarked, "What could the death of one wretched Negro mean to me?"

Even now, there is a faint whiff of similar French disdain toward Aristide, as expressed by Foreign Minister de Villepin's haughty criticisms last week. Few Haitians were even aware that France was still so interested in their affairs. We noted the opportunity that this situation affords to Paris for an inexpensive rapprochement with the US. In addition, however, one senses that to this day, there is a special French animus reserved for rebellious Haitian blacks -- the kind who dare to contort the French language beyond recognition, demand reparations for injustices that "Old Europe" can no longer can even remember, and once or twice even soundly trounced its greatest general's army!

Of course, we cannot forget that Colin Powell, Condoleeza Rice, and "Grand Master of the Order of the Sun" Roger Noriega, a Cuban-American, were also involved in these decisions. So there could not possibly be any question of racial prejudice here, at least on the part of the Americans....except perhaps for the mutual contempt that "house Negroes" and "field Negroes" often have for each other.

CONCLUSION

Aristide now claims that the US, which leased the 757 jet that took him to Africa, never informed him that he would be dropped off in the CAR. There are also reports that on his arrival in the CAR, he was accompanied by a detachment of 60 US Marines. This seems a little excessive for a "voluntary departure." Aristide also claims – like Hugo Chavez did after the attempted April 2002 coup in Venezuela -- that he never resigned voluntarily, but was pressured to flee – or even effectively “kidnapped” -- by US officials.
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ProConsul Powell

The US Government and Colin Powell were evidently quite embarrassed by these charges, and annoyed that Aristide's wardens in the CAR did not make it more difficult for him to procure an international phone line. They have dismissed these accusations as “complete nonsense,” and blamed Aristide for the entire crisis.

But Colin and the USG are having more than a few credibility problems these days. What do we expect them to say? Even an outside observer with no particular brief for Aristide may be forgiven for having a few doubts. CARICOM has called for an independent international inquiry to establish just what happened -- but don't hold your breath. However, it may not really matter. Even on the face of it, as we've seen, the US' unwlllingness to defend Aristide was more than pressure enough.

Did the US really have an obligation to save Aristide from the wolves around him? After all, Haiti is not the 51st US state, and many Americans no doubt believe that he got what he deserved, after years of antagonizing his opponents. From this angle, he should be grateful for the rescue and the free ride to to the CAR.

However, this perspective is far too narrow. It is not as if the US has been a neutral bystander with respect to Haiti's development. The US embargoed the country from 1804 to 1862, at first to placate France, and then Southern slave owners, who feared the successful example of an independent nation of blacks. The US intervened repeatedly in Haiti's affairs, including the continuous occupation from 1915 to 1934, when, among other things, Citibank actually exercised complete and very profitable control over Haiti's money supply, national bank and customs house. The US established and trained the Haitian Army, which subsequently caused the country so much grief. We tolerated and supported the Duvaliers during their 29 years in power, as well as the military juntas that held power after they left. As noted above, The CIA was deeply involved with the people who organized the 1991 coup and created the FRAPH.

Only at the end of all this, partly just to contain Haitian immigration but partly out of a justifiable sense of responsibility, did we intervene in 1994 and restore the duly-elected Aristide to the Presidency. Taking this one step toward democratization, however, was not enough to insure democracy's success. And just because we don't like the particular choices that Haitians have made for their leaders, does not justify our walking away from the duty -- in this specific situation -- to see those choices through.

Instead, it now appears that the Bush Administration has decided to put this annoying populist Aristide behind us once and for all. At the same time, it probably also hopes that a quick US intervention, followed up quickly by UN surrogates, will avoid yet another messy immigration crisis in the middle of a US election year. Many Bush I Adminstration veterans no doubt still have nightmares about those troubling days in 1991-92, when Pappy just wanted to win Florida and 40,000 determined Haitian boat people started showing up on Miami's beaches, fleeing the nasty Cedras dictatorship.

The new approach does present an opportunity for self-important-but-increasingly-insecure countries like France, Canada, and Chile, which just volunteered more tha 120 troops, to come skulking back to the “coalition of the willing." I also permit recipients of USAID, IDB and World Bank funding – a high fraction of which actually gets spent in the First World, or on locals who have above-average incomes – to tap these sources again. There will also be many other benefits to the business elites, security forces, local politicians on the "right," "free trade zone" sweat shop employers, and perhaps even M-16 salesmen.
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Indeed, the only beneficiaries who may be left out of this picture are ordinary Haitians – the seventy percent that still survives on less than $1 per day, and constitutes the core of Aristide’s supporters. Many of them have suffered directly from all the upheavals, and Aristide as well as his high-minded opponents share responsibility for their inability to settle their differences peaceably.

But it is also clear is that these millions of ordinary Haitians have just been disenfranchised again. However imperfect Aristide was, however discomforting to First World interests, he was their voice, a voice they've now lot. This is a form of political decapitalization that no amount of "economic assistance" can compensate for.

Did I remember to say that, for all its woes, Haiti is a remarkable place, with millions of people eking out a living on the very borders of existence, but also quite often managing to have a good time, creating the most wonderful art, music, humor, and community spirit? Unfortunately, for all its "independence," Haiti's fate has always been heavily influenced by outside forces.

Haitians of all political persuasians now eagerly await the next installment of neoimperialism's grand design for their tiny, impoverished, heart-breaking, "independent" republic.


***

© James S. Henry, Submerging Markets™2004. Not for quotation or attribution without express consent.


March 6, 2004 at 05:16 PM | Permalink | Comments (0) | TrackBack

Thursday, March 04, 2004

Regime Change Comes to Haiti - Part I: --- Criminal Contras and The Offers That You Can't Refuse

"130 Dead and Counting - Was It Worth It? "200 Years of Liberty! -- 33 Coups, 5 US Military Interventions, and the Worst Poverty in the Americas!""

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Dye mon, gen mon. (Over the mountains, more mountains) Byen mal ne pas la mo. Very bad isn’t dead (“Things can get worse.”) --Haitian Proverbs A man who stands for nothing will fall for anything. -- Malcolm X
On January 1, 2004, Haitian President Jean-Bertrand Aristide welcomed South Africa’s Thabo Mbeki to Port-au-Prince, the only significant world leader who joined him to celebrate Haiti’s two hundred years of “independence” from France (as one of its formerly most lucrative colonies), and Haiti’s status as the world’s oldest surviving black republic – complete with 32 coup d’etats, 5 US military interventions, 10-15 percent of US-inbound cocaine traffic, and the lowest per capita income level, the most poverty, and the highest rate of HIV/AIDs infection in the Western Hemisphere. Thabo experienced the side-effects of such conditions first-hand; during a visit to the northern city of Gonaives, one of his helicopters was reportedly fired upon, and, even though he wasn't in it at the time, his security guards evacuated the area and cancelled further trips to that region. Just three months later, it was Aristide and his family that had to be evacuated. Escorted by US Marines and an indeterminate number of French troops, they were unceremoniously spirited out of Port-au-Prince in the wee hours of a Sunday morning, effectively deposed for the second time in thirteen years. Aristede now has the dubious distinction of having been removed from power under, and perhaps by, two different Bush Administrations – the first time in September 1991, by way of a Haitian military coup that is widely believed to have been CIA-supported, and this time, on February 29, 2004, by way of a “resign or die” safe conduct offer that was abetted by two prodigal US allies, France and Canada. Of course Aristide has many shortcomings, including his divisive leadership style, his dubious former associates, his appetite for bizarre proposals like the “French colonial reparations” scheme, his tolerance of armed thugs in the Lavalas Family party, and the “fundamentally flawed” May 2000 elections (according to the OAS and Human Rights Watch) that gave Lavalas temporary control of Haiti’s parliament, but also contributed significantly to the current crisis. Most important, over time, it has become less and less clear even to his followers what he actually stands for, beyond populist rhetoric. Regardless of what we may think of Aristide and his followers, however, the recent behavior of the US, France, Canada, and indeed, the UN, with respect to Haiti has been inexcusable, from the standpoint of strengthening Haitian democracy. As discussed below, rather than intervene quickly in early February with a limited show of force that would have easily deterred further violence, the US and its allies temporized. Ultimately this gave the Haitian “opposition,” whose own track record of support for democracy is very mixed, the power to dictate Aristide's resignation letter. That is a power that the opposition, even now, would almost certainly not command at the ballot box. The US and France also conditioned safe passage on Aristide's signing this letter, and then dumped him in central Africa, 6200 miles from home, in a destination he only learned of 20 minutes before landing. All told, as Jamaica Prime Minister P.J. Patterson, chairman of CARICOM (the Caribbean Community), said this week, all this has created a very “dangerous precedent” for all the other fledgling democracies. In Haiti's case, the next time around, we should expect Aristide's still-numerous followers to bring a few more heavy weapons of their own to the party. As if we needed one, this episode also provide yet another example of American (and French) neo-imperialism, as well as "first-the-US, then-the-UN" diplomacy."
ARISTIDE'S LEGITIMACY Aristide is not the only elected leader who is divisive, has an imperfect electoral past, or has a few corrupt friends and associates in his closet. There may even be a few in George W. Bush's America, Jacque ("the Crook") Chirac's France, and Paul Martin's Canada. But let’s be clear – for all his flaws, Aristide is undeniablythe most “democratically elected” President in modern Haitian history. For this reason alone, his non-democratic denouement should concern us.
  • The first time that Aristide was elected in December 1990, he won the country’s first free Presidential elections in history with 67.5 percent of the vote. The runner-up, who was supported by the US, was former World Bank Vice President and Duvalier finance minister Marc Bazin. He got 14.2 percent. Aristide only served 7 months of his first five-year term before the 1991 coup. When he was finally restored to power by the Clinton Administration in September 1994, not only were all the brutes in the Haitian military given amnesty, but he was only permitted to serve another 16 months before being sidelined for five more years.
  • The second time, in November 2000, Aristide was elected President with an even greater majority. True, turnout in that Presidential election was just 15-20 percent. Facing certain defeat, without a compelling candidate of its own, Haiti’s opposition cynically boycotted the contest entirely, citing irregularities in the May 2000 parliamentary election.
  • There were many irregularities in that parliamentary election, and, in retrospect, Aristide should have made amends sooner. But no one believes that would have changed the outcome of the Presidential election. There are also grave doubts that the US, the World Bank, and the IDB should have held up more than $500 million of aid to Haiti's people, because of these irregularities. But Aristide's long-standing foes in Washington and the EU leaped at these electoral infractions as an excuse for cutting off most foreign aid. (For the interested reader, the election irregularities are discussed here, here, and here.) Curiously, the OAS standards for that election were evidently altered after the May 2000 race was run. Suffice it to say that by OAS standards, Florida’s balloting in 2000 -- which did determine a Presidential election -- was even more “fundamentally flawed.”
BARGAINING IN GOOD FAITH – OR JUST BUYING TIME? The other key fact to understand is that Aristide had agreed by late January 2004 to accept the “"Kingston Accord" proposed by the 15 CARICOM countries, which called for power-sharing and new elections. This would have allowed him to serve just two more years in office, and could have produced new elections, perhaps even sooner than they will occur now. noriega.terrorismo_story.ap.jpg
The Other Noriega
Unfortunately, Haiti’s “peaceful” opposition was, in the words of one foreign policy analyst, “ out for the kill.” The Bush Administration, which is top-heavy with long-time Aristide detractors like Assistant Secretary of State Roger Noriega (a former Senate staffer to Senator Jesse Helms, and one of the people who popularized the bogus CIA "psychotic" analysis of Aristide in 1994), permitted the Haitian opposition to stone-wall these CARICOM proposals to death. The opposition knew full well that the armed rebels were on their way, and it received strong signals from its friends in Washington that it had nothing to fear from refusal.
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Commander Guy Philippe
The US, France, and Canada, as well as the UN, had plenty of advance warning about the few hundred well-armed anti-Aristide “Haitian contras” who started moving in from the Dominican Republic as early as March 2003. They were presided over by such notorious ex-Haitian Army convicted criminals and drug traffickers as Louis Jodel Chamblain, Jean Tatoune, and Guy Philippe. Even though they were few in number, they were surprisingly well-organized, financed, and equipped, dressed in new combat suits and brandishing new M-16s and M-60s. Meanwhile, the poorly-trained, ill-led, and under-equipped Haitian Police had for the most part skeedattled, leaving Aristide with only the “chimere,” his street militias, and a small group of bodyguards hired from the Steele Foundation, a San Francisco security firm. Unless the US or the UN were willing to defend Aristide against these “Haitian contras,” therefore, they must have realized that they were effectively giving the opposition the power to mandate Aristide's ouster. As we’ve seen, it has been relatively easy for the 1000 or so US troops that have landed to disarm the contras. The question is why this could not have been done before? The US claims that it didn’t want its troops to be seen supporting Aristide. But this begs the question – couldn't their role have been positioned as supporting power-sharing and a constitutional transition? Yet The US, France, and Canada failed to support the February 23rd Caribbean Community (CARICOM) proposal for an immediate UN peacekeeping force that would have disarmed all sides. The US also blocked Aristide’s last-minute attempts to import new bodyguards from the Steel Foundation. On the other hand, once Aristide had left, the UN moved with astonishing speed to establish a peace-keeping force, compared with other situations that happened to be less important to the US, like Rwanda, DR Congo, or Liberia. _38347769_jm_pj_bbc300.jpgPrime Minister P.J. Patterson In 2002, while maintaining the boycott on economic aid to Haiti, the US had also sanctioned the sale of 20,000 new M-16s to the Dominican Republic’s Army. Why the Dominican Republic’s Army, which has a horrific human rights and drug-trafficking record of its own, needs so many M-16s is not obvious. Perhaps, in addition to defending the DR elite against their own people, turning back starving Haitian immigrants, and arming the Haitian contras, it expected it might have to deal with a newly-reconstituted Haitian Army. Even earlier, the US and the Multilateral Interim Force that brought Aristide back to power in 1994 had also failed to adequately disarm the Haitian military and FRAPH paramilitary. That, in turn, only encouraged Aristide's followers to form militias of their own. Not surprisingly, some of them also turned to drug traffic, given the plummeting regular economy, the continuing US aid cutoff, the strong US demand for cocaine, and their own ideal location on the trade route. The US and the MIF also failed to provide adequate resources and training for the National Police. New York City, with a population comparable to Haiti’s 8 million people, has nearly 40,000 police; Haiti’s entire police force, only founded in July 1995, numbered 4,000 at its peak. (True, more than a million of Haiti's 8 million people may be working in the US, at any one time, but the point remains.) _231156_baby_doc_300.jpg
Former Pres-for-Life "Baby Doc" Duvalier
The US and the MIF also failed to bring any significant human rights violators to justice. As noted, several have recently turned up among the “Haitian contras.” Apparently the US and the Dominican Republic preferred to concentrate their prosecutorial resources on Haitian immigrants and drug smugglers. Indeed, while they refused to provide Aristide asylum themselves, the US and France, as well as the Dominican Republic, all provided refuge to top human rights violators like “Baby “Doc” Duvalier and Emmanuel “Toto” Constant, a CIA “grantee” and close associate of Chamblain’s who led the coup against Aristide in 1991, and helped to found the FRAPH, the right-wing death squad that was responsible for several thousand deaths in 1992-94. (The US refused to extradite him to be tried in Haiti, and he’s reportedly been living in Queens.) At least 15 other former top FRAPH leaders have also reportedly found refuge in the US. Philippe, one of the leaders of the "contras," was reportedly convicted in Haiti of several previous coup attempts, and has been living in the Dominican Republic. But the DR refused to extradite him, or even sign an extradition treaty with Haiti, its next-door neighbor. Perhaps the DR just valued his leadership skills. _39868890_haiti_detailed5_map416.gif STANDING ASIDE The failure of the US and the increasingly feckless UN to move quickly against the Haitian contras meant that at least 130 Haitians lost their lives in the violence leading up to Aristide’s ouster, and thousands more suffered increased hunger and disease as a result of the uprising. It also meant that a band of a few hundred armed hooligans effectively undermined the position that Secretary of State Colin Powell took before the US Senate Foreign Relations Committee on February 12, when he said, “The policy of the Administration is not regime change. President Aristide is the elected President of Haiti.” Whether or not the US held a gun to Aristide’s head and forced him to sign his “resignation” letter, therefore, is irrelevant. It might as well have. If this was not “regime change,” then the 1968 Soviet invasion of Czechoslovakia was a “peacekeeping mission." In fact, cynics say that all the talk about a “negotiated settlement” by the US during the two weeks before Aristide's departure was just a smokescreen -- buying time for the contras until they gained enough ground to force Aristide out. Moreover,as P.J. Patterson noted above, for the other young democracies in the region -- especially those whose armies have a history of misbehaving, like Venezuela, Panama, the Dominican Republic, El Salvador, Nicaragua, and Guatemala -- Aristide’s removal without a constitutional transition is not unhelpful. The main lesson that “future Aristides” may draw is that they cannot rely on the international community for even-handed protection against even a tiny band of well-armed “contra” free-lancers with influential First World supporters. Instead, they will have to deploy their own heavily-armed defenders -- something that Aristide, to his credit, never really did. But Venezuela’s Hugo Chavez is already digging in. For him, unlike Aristide, one coup attempt by US-backed opponents was enough.
*** © James S. Henry, Submerging Markets™2004. Not for quotation or attribution without express consent.

March 4, 2004 at 04:40 AM | Permalink | Comments (1) | TrackBack

Monday, March 01, 2004

Pentagon Strategy Crisis? "New "Secret" (Actually, NOT! Report:" "Global Warming a Greater Threat Than Terrorism!!"

"U.K. Climate Becomes"Siberian" in 17 Years"
"Neth. Floods by 2007"
"Massive Droughts, Famines, Water Shortages in Asia, Africa, Middle East"



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Download PDF -"Unthinkable" Schwartz/Randall Report

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As if the world did not already have enough problems, the last few months have raised the ugly specter of global warming once again, perhaps more forcefully than ever. As we'll see below, there are indeed many recent indications that this problem is -- beg your pardon -- now "heating up." Moreover, one of the more interesting developments comes from the belly of the beast itself, the Pentagon's Office of the Secretary of Defense (OSD), by way of a so-called "secret report" ( according to The Guardian/Observer) that the Pentagon reportedly solicited from two prominent California "futurists" and part-time Hollywood war/disaster-film consultants.

In fact, it turns out that the The Guardian/Observer reporters didn't do their homework. While their February 22 story claimed that this Pentagon report on global warming by California futurists Peter Schwartz and Doug Randall was "secret," Fortune Magazine had obtained and released a copy from the Pentagon on January 26, and SubmergingMarkets has obtained a copy of the so-called "secret" report's Executive Summary, which may be downloaded above or below.

The report, entitled "Imagining the Unthinkable: An Abrupt Change Scenario and Its Implications for US National Security," does make for interesting reading. The authors, private consultants who work for Monitor Group/GBN in California and specialize in "long-run scenario planning," have generated a provocative scenario for the effects of an abrupt, discontinuous change in the world's climate. It involves a hefty diet of chaos, famine, drought, and war, as well as a whole new ice age. The melodrama is perhaps not surprising -- after all, one of the two consultants, Peter Schwartz, has also advised on plot development for films like Minority Report , War Games, and Deep Impact. And, of course, scenario designers, like script writers, don't get paid very well for imagining minor variations on the status quo.

As the Pentagon report itself acknowledges, it is not a "forecast," but a "what if?" exercise in "thinking about the unthinkable,"in the great tradition of Dr. Edward Teller and DOD's "wintry doom" scenarios of the late 1950s and the 1980s. The aim was to construct a "plausible," if not necessarily probable, scenario, in order (in the authors' words) to "dramatize" the possible consequences of "an abrupt slowing" of the ocean's "thermohaline circulation" (TC), the deep ocean currents that have a profound influence on subsidiary ones like the Gulf Stream and the Humboldt Current.

The possible link between global warming and TC is not a new idea. Most of us probably imagine, and certainly hope, that the effects of global warming will be gradual, leaving us -- and our trusted technologists -- plenty of time to react. But in fact there is a growing body of evidence that global climate change can occur quite fast and be very destabilizing. The notion of "abrupt change" has been gaining ground in the world's scientific community since at least the 1980s. And many scientistshave expressed concern about the potential impacts of global warming on TC.

As the authors of the Pentagon report acknowledge, at this point most leading scientists probably believe that the impacts of a TC shift would be "considerably smaller" and more localized than their report assumes. However, what is perhaps most frightening is just how limited our understanding of the potential for "abrupt change" apparently is. Just this month, the US's National Science Foundation and the UK's National Environmental Research Council launched a new four-year project aimed precisely at understanding the TC-global warming relationship.
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By dramatizing the importance of this relationship, this "pseudo-secret" report has served a useful purpose. Of course its release is unlikely to please the Bush Adminstration, which has so far adopted a head-in-the-sand attitude toward global warming, including its refusal (together with Russia and Australia)to sign the Kyoto Treaty.

The hapless Guardian/Observer also erred in its claim that the report was "suppressed by US defense chiefs." It also claimed that the report's release "will prove humiliating to the Bush Administration..." So far the report has only clearly proved 'humiliating" to The Guardian/Observer.

However, SubmergingMarket's review of the global warming issue suggests that -- well, my goodness, as Donald Rumsfeld might say, someone in the Bush Administration really should take these matters more seriously! Evidently we have someone in the Pentagon OSD, or at least Monitor/GBN, to thank for underscoring this fundamental point.
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We just hope that the task is not just left up to folks like Andrew Marshall, the 82-year old waspish Dr. Strangelove who has been in charge of the Pentagon's "long-range strategic planning" since 1973. He may have contracted for this doomsday report, but he also recently raved about giving our troops "bio-engineering" drugs to make them fight harder. Clearly he has too much time and money on his hands. (See below). Nor should it be left in the hands of his two hip California futurists, neither of whom has any scientific credentials, and one of whom (see below) predicted in 1999 that the US was on the verge of 25 years of uninterrupted economic growth(..just a year before the 2000-2003 global recession)! As the Secretary might say, My golly! Can't we do better than this? Is this why we're spending $401 billion this year alone on non-Iraqi "defense?"

BACKDROP - SINKING ISLANDS, TARDY ICE, MISSING BEARS

Before we turn to the Pentagon report, let's examine the context -- a growing body of evidence that we may indeed have to pay a very high price for our inactions on global warming. Among the recent indicators:

  • In December 2003, Russia followed in the footsteps of the US and Australia, and refused to ratify the Kyoto Treaty. This was probably more of a short-run bargaining tactic than a Bush-like idee fixe. Absent US support for the Treaty, Russia's vote is needed to make it an international law, which requires its signature by countries responsible for at least 55 percent of all greenhouse gas emissions. Without US participation, Russia lost a huge market for the "pollution credits" that it hoped to sell to over-polluting American companies. It also has its own oil and gas industry to protect, and is bargaining with the EU for more favorable terms, as it enters the WTO.
  • In any case, further consideration of the issue will now be deferred until another conference in 2004. The EU and Russia had wanted to hold off until after the US elections, but a coalition of 40 small island countries blocked the delay -- several of them, including the Marshall Islands, Kiribati, and Tuvalu in the South Pacific, are already sinking into the sea, literally becoming "submerging markets."

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  • In late December, the prestigious American GeoPhysical Union reported that carbon dioxide emissions are now growing faster than ever, and concluded that "It is virtually certain that increasing atmospheric concentrations of carbon dioxide and other greenhouse gases will cause the global surface climate to become warmer."
  • Meanwhile, in December, representatives of Alaska's 155,000 Inuit tribespeople filed a human rights complaint against the Bush Administration with the Inter-American Commission on Human Rights in Washington, D.C., on the grounds that they face virtual extinction because of global warming. According to them, the oceans that surround them are now warmer than ever, the permafrost that supports their homes and roads is melting, the ice arrives later and leaves earlier every year, and polar bears and seals are disappearing.
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  • In early January 2004, Nature, the influential peer-reviewed science journal, published a study that predicted that by 2050, 15% to 37% -- up to 1 million in all-- of all animal and plant species on the planet may be made extinct by climate changes.
  • Also in January, in a vivid demonstration of just how concerned many scientists are about this issue, a conference of leading experts from the UK and the US met at Cambridge University, and considered a variety of rather extreme technical solutions to global warming, including the deployment of "tens of billions of wafer-thin metal plates... into the Earth's low orbit," the growth of huge algae beds in the oceans, and the construction of massive cloud-generating machines that would shield the earth from the sun.
  • Just this month, in a warning that captured the attention of everyone who enjoys scuba diving, a study by scientists at Queensland's University concluded that Australia's Great Barrier Reef will completely disappear by year 2050, if ocean temperatures continue to rise at current rates. This is significant because, as noted, Australia, like the US and Russia, had refused to sign the Kyoto Treaty.
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  • In January, Scottish fishing experts also reported a decline in wild salmon stocks, just as the fishing season was opening. They attributed the decline to global warming.


BACKGROUND - THE PENTAGON'S GLOBAL WARMING STUDY

On top of all this, we now have this week's dramatic leak of a new Pentagon analysis of the national security implications of global warming. According to this report, which The Guardian described as "secret," the implications would be nothing short of catastrophic. Indeed, according to The Guardian, "The few experts privy to its contents.....(say) (T)he threat to global stability vastly eclipses that of terrorism.."

Since this report collides head on with the White House's antipathy toward the whole concept of global warming, and also undermines its case for the primacy of fighting terrorism, the Pentagon has a few strategic challenges to sort out. It will be helpful for us to understand the origins of the report.

INVISIBLE MAN

According to The Guardian, the Pentagon global warming study was undertaken at the instance of its 82-year old in-house futurist, Andrew W.Marshall . Marshall is a life-long military strategist, one of the few who worked with such legendary war-hawks as Dr. Edward Teller and Albert J. Wohlstetter. Throughout the 1950s, Marshall worked at The Rand Corporation in Santa Monica as a cold war gamer. In 1969, he succeeded Dr. James Schlesinger as Rand's Director of Strategic Studies, when Schlesinger joined the first Nixon Administration.

During the next four years, Marshall authored what turned out to be one of the seminal works on US-Soviet strategy -- "Long-Term Competition with the Soviets: A Framework for Strategic Analysis," published in 1972. This report basically ported the whole concept of competitive strategy to the world of military planning. At the Pentagon, which had heretofore evaluated programs and budgets in terms of narrow, technical criteria rather than their contributions to strategic value, this approach was considered revolutionary. In May 1973, Schlesinger, who had just become Nixon's Secretary of Defense, appointed Marshall to be the Director of the Office of Net Assessment a new post in the Office of the Secretary of Defense that assumed responsibility for long-run military strategy. Marshall has held this post more or less continuously ever since.

In this capacity, Marshall has reportedly exerted enormous influence, as a kind of eminence gris -- the equivalent of George F. Kennan, the State Department's resident intellectual and policy planner during the 1950s -- only with twice the tenure. Marshall based his longetivity not only on strategic insights, but also on political skills -- he was content to stay in the shadows, bringing others along and helping them to succeed. Over time, he cultivated a loyal group of increasingly influential Pentagon officials, many of whom later converged on the second Bush Adminstration.

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This group is often referred to collectively as "neoconservatives." This is really a misnomer -- there is nothing at all about their policies that is "conservative." A more accurate term is "ultra-imperialists," or simply, ultras. Among the best known are Rumsfeld, Paul Wolfowitz, Richard Perle, Eliot Cohen, and James Roche, the Secretary of the Air Force.

Partly through Marshall's influence, this group came to share several strong beliefs about national security.


  • They have all regarded 'long-term competitive military strategy" as a serious, high-minded intellectual enterprise -- a rational endeavor that one could count on for useful results.
  • They have all generally believed that the demise of the Soviet Union, their old long-term "enemy," owed a great deal precisely to this kind of rational military and economic competitive strategy -- as implemented by Ronald Reagan during the 1980s. It was no longer just a theory; its value had been proven in combat.
  • Most of the ultras have also shared Marshall's boundless technological optimism -- his confidence in the capacity of the US economy and technology to provide a continuing, even growing competitive advantage over potential rivals.
  • They saw the US as a largely innocent "democracy," with clean hands and high principles. In their view, the US has never had a desire to possess or occupy other countries -- well, not at least since 1946, that is, when the US occupation of the Philippines formally ended. It only wished for other countries to develop "free market" economies, which it saw as a guarantor of peace, development, and prosperous trade for all concerned. As such, they believed that the US had every moral right to leverage its superior powers to its advantage, regardless of what the rest of the world might think. It had, first of all, the absolute right to act in its own (perceived) defensive interests. It had, moreover, the right to act on behalf of other important interests that it might deem necessary, even unilaterally.

    As the novelist Graham Greene once said, "No country has had better motives for all the damage that it does."

  • The ultras also were traditionally quite proud of the fact that, unlike many of its enemies (especially the Soviets, the Chinese Communists, the Cubans, and so forth), the US has always maintained a relatively open society, with relatively free and open borders, a long history of welcoming immigrants regardless of financial means, or (with notable exceptions) even national and ethnic origins, and relatively modest police controls on ordinary citizens that were in case subject to a very strong bill of rights.

These shared values are important for us to understand, because every single one of them is now being called into question, not through abstract disputations, but by the new harsh realities that the US faces on the ground. This is evident, not only in the Pentagon's recent experiences in Iraq, Afghanistan, and the "global war on terrorism." It is also evident in the recent immigration crisis, occasioned by the growing tide of immigrants, mainly from Mexico and Central America, that has recently crossed our borders. And it is also evident in the challenges noted in the Pentagon's recent global warming study, which has profound implications for all these other problems.

OTHER PROPENSITIES

Along the way, there were also many other Marshall sympathizers whose motives were perhaps a little less high-minded than those who had been his intellectual comrades and proteges. These included many leading US defense contractors and their Congressional allies. Over time, Marshall's ONA developed strong, mutually beneficial ties to such key constituencies, and provided on-the-job training to a steady flow of future top industry executives and Congressional staffers.

In his procurement recommendations, Marshall also tended to err on the side of (a) perceiving huge threats that -- quite coincidentally, of course -- almost always required extremely costly, technology-intensive weapons systems, from anti-ballistic missiles systems, precision-guided missiles, remote sensing, and meteorological manipulation to unmanned combat vehicles, holographic projectors, sea-bed robotics, and particle beam weapons. As the Batman's Joker once said, "Where do they get all those FABULOUS TOYS?"

Of course, most of Marshall's activities took place behind closed doors. (See the recent Submerging Markets white paper on Intelligence Failures).So we only have a few snippets in the public record to help us assess his performance, like his reported exaggeration of the continued Soviet threat in the early 1990s, and his agonizing search for a worthy successor to the Soviet Empire, for which he ranged from China to North Korea, and finally, with the help of fellow ultras like Bernard Lewis and Samuel P. Huntington, ended up with (the somewhat confusing blend of ) the "Islamic fundamentalist horde" and the "Axis of Evil."

But there is at least one good publicly accessible example of Marshall's appetite for expensive, hair-brained technologies -- one of his most recent fetishes, "bio-engineered soldiers." This involves the use of behavior-modifying drugs to achieve specific battlefield conduct. (I am not making this up.) As he observed in a rare public appearance at the University of Kentucky in August 2002,

“The drugs would affect specific receptors and would act just like the internal chemistry (of the brain). We could create fearless soldiers, soldiers that would stay awake longer or be quicker and more alert... These new types of drugs or biochemical agents could create a new model of man."

For Mr. Marshall, apparently "the war on drugs" meant "(DOING) the war on drugs"! One would of course suppose that he must have discussed this loony idea -- which would open the door to all sorts of misbehavior -- with Rumsfeld,,his immediate boss, who, after all, had in the late 1970s served as the CEO of GD Searle, one of the nation's largest drug companies. Evidently the boss did not discourage him from these meditations. The mind boggles at the prospect of thousands of young men and women, no longer consciously serving their country as proud citizens, with honor and dignity, but "doped up," marching fearlessly slavishly into battle, doing whatever they're told......

Of course, if Marshall was willing to ponder this kind of policy in public, just imagine the other flights of fantasy that might be available to those with the security clearances to see them! (Admiral Poindexter, where is thy sting!) Given what we do know, it is not really surprising that Marshall was almost ousted in the late 1990s by President Clinton's Defense Secretary, William Cohen -- a sober Maine Republican. The dismissal was reportedly avoidedat the last minute by way of Marshall's many friends in Congress and the defense industry, plus the neocon press, which portrayed him as lying awake nights, worrying about defending our freedoms, not about how to induce killing sprees by the infantry with pharmaceuticals.
MarshallAndrewDOD.jpg

After President George W. Bush took office in 2001, Rumsfeld became Marshall's boss again, and soon placed him in charge of a strategic panel that was one key part of a fundamental rethink that Rumsfeld described, with typical modesty, as a "Revolution in Military Affairs." (RMA)

One might have thought that, even apart from his age and eccentricities, Andrew Marshall might not have been the best choice to lead such a strategy validation, especially after 9/11. After all. he'd spent thirty years designing strategies for a very different kind of adversary. The contrasts between the Soviets and the new global threat environment were many:


  • "Competitive strategy" was much easier to define when the conflict was among more or less symmetrical "hegemons" like the US, China, and the Soviet Union. When opponents are not battling for nations, but for the vindication of ideas, movements or deeply-felt antipathies, and are disbursed across the globe rather than concentrated in a few countries, notions like "competition," "wartime," "combatant," "preemption," "deterrence," "victory," and "power" are no longer well-defined.
  • Arsenals of conventional "anti-state" weapons, like jets, aircraft carriers, missiles, and tanks, are designed to destroy fixed positions, attack large groups of mobile forces, or wipe out concentrations of troops and seize territory. These may no longer be decisive against the latest post 9/11 generation of adversaries. At the same time, they can easily become resource sinkholes, because of their "semi-custom" production economics and very high maintenance and logistics costs.


  • "High technology," can easily become a narcotic, while "low technology" can be surprisingly effective -- partly just because relying on it "enforces" creativity. The limiting case here is of course the box cutter and the hijacked plane. But once an enemy has defined "victory"as simply being able to disrupt civilian society, the list of potential "weapons of massive-enough destruction" becomes endless. Yhe cost of defending against all the endless possibilities also becomes prohibitive, so that even "successful" defense is bittersweet.


  • In this context, Marshall's conventional "competitive strategy/scenario planning" apparatus of the Cold War period had became a clear disability, probably as early as the mid-1990s, and certainly by the end of the 1990s. Similarly, "strategic planning" in the private sector also went the way of all flesh in the 1990s, for most large companies. In the private sector, when such practices ceased to be productive, there were at least some natural forces that encouraged them to disappear -- though even there, many companies failed to move quickly enough. (Viz. AT&T, Polaroid, Xerox, etc.) In the context of the massive Pentagon bureaucracy, with its hundreds of thousands of staff, government regulations, security procedures, restrictions on hiring, limited performance bonuses, restrictions on firings and transfers, and endless red tape, casting such entrenched practices aside in favor of greater focus on creativity, rapid adaptation, and innovation is almost impossible.

    In effect, these bureaucratic "diseconomies of scale" go a long way toward evening the odds between the "1-bullet guerilla" and the entire US military. One imagines poor Marshall, sitting in his Pentagon bastion, ruing the day that the enemy stopped being the mighty Red Army. He had met the enemy, Pogo, and he recognized the face.



Despite all these disabilities, Rumsfeld decided to rely on Marshall for the strategic panel of his RMA assessment. Marshall, in turn, must have realized that when it came to analyzing non-conventional threats like state-less terrorism or global warming, he needed to pull in some outside resources who were perhaps not so captive of traditional approaches. That set tthe stage for the production of the confrontational global warming analysis that has just now reached the light of day.

BACK TO THE FUTURISTS

To get a handle on such non-traditional issues, Marshall reached out to Peter Schwartz, a well-known "futurist," and the co-founder and Chairman of California's Global Business Network,, now part of Cambridge-based Monitor Group. GBN's other co-founder and fellow futurist, Stewart Brand, was the author of the "Whole Earth Catalogue," and founder of the "Long Now Foundation," an organization devoted to extremely long-term thinking, including the construction of a 10,000 year clock. Schwartz, the elder of the Pentagon report's two authors, is not trained in environmental science, but he does have a B.S. in Aeronautical Engineering from Troy's Rensselaer Polytechnic. He also served as director of the Stanford Research Institute's "Strategic Environment Center," and a "Scenario Planner" for Royal Dutch Shell from 1982 to 1986, during the heyday of corporate planning, before GBN's creation in 1987. In addition to the Pentagon, Schwartz has also consulted to the CIA, Darpa, and many Fortune 500 companies. He's also advised Hollywood film-makers on the plots of several successful war/action films, including Deep Impact, War Games, Sneakers, and Tom Cruise's Minority Report.

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Schwarz

Schwartz has also authored several books, including a 1991 best seller on "scenario planning," "The Art of the Long View." In 1999 he published a less fortunate book The Long Boom (1999),co-authored with Peter Leyden and Joel Hyatt, in which they predicted "25 years of uninterrupted economic growth and prosperity." Of course, as we now know, this prediction was undermined by the global recession that started just one year later.

However, this did not deter Schwartz from continuing to pursue long-range planning and analysis. In an interview associated with the publication of his latest book, Inevitable Surprises (June 2003), he still maintains that his "long term boom scenario" will hold up, at least over the next half century. And while there will always be shocks and surprises, he still sees great value in scenario planning -- according to him, "September 11 was the most predicted event in history."

For purposes of the Pentagon report on global warming, Schwartz teamed up with Doug Randall, a Wharton graduate and a GBN "senior practitioner," who also had no environmental science training. This was not their first collaboration. In an April 2003 article in Wired Magazine, they argued that the US Government should undertake a massive 10-year, $100 billion program to develop hydrogen power as a substitute for imported oil.

That timetable is much more aggressive than the "several decades" that many other experts regard as necessary to develop the economical fuel-cell technology and hydrogen distribution systems required for basing mass transportation on hydrogen. But this difference of opinion may really just derive from the fact that, unlike Peter Schwartz, most of the other experts have not invested "in two companies that are now developing hydrogen power." Apparently in this instance, President Bush agrees with Schwartz, because he has also recently advocated the development of fuel-cell-based "Freedom Cars" as an alternative to requiring any better fuel efficiency from car manufacturers now.

DIRE STRAITS

The "secret" Pentagon report produced by the two GBN futurists is nothing if not dramatic. According to them, the world may now be headed for a period of profound, sudden, discontinuous changes in climate, with a possible reversal of the gradual recent trends toward warming, followed by rapid cooling and perhaps even a new ice age in much of the world. Among the many side-effects that all this might have:

  • Flooding of the Dutch seacoast and the Hague as early as 2007;
  • By 2010, the US experiences a third more days per year with peak temperatures above 90F.
  • The imminent prospect of historically low mean temperatures in Western Europe, including "Siberia-like" conditions in the UK by 2020;
  • Large-scale famines in southern Africa, India, and China;
  • Acute water shortages in the Middle East, the Amazon Basin, and the Nile Delta;
  • The likelihood that the US and Europe may become "virtual fortresses," to prevent inundation by millions of destitute immigrants from the increasingly-uninhabitable Third World, where the lives of more than 400 million people become at risk.
  • Low-lying countries like Bangladesh become virtually uninhabitable.
  • As international tensions over food and water increase, there are much greater incentives for countries like Japan, Germany, and South Korea to acquire nuclear weapons, and to use them.


Not surprisingly, this scenario lines up almost exactly with the pro-hydrogen logic that Schwartz has recently been propounding around the country and in his recent book. But it does appear to be a bit too choppy to reconcile with his other favorite scenario, the vintage 1999/03 "long-growth boom. "

In any case, the disturbing portrait provided by Schwartz and Randall of the possible downsides of global warming is not likely to curry much favor with the Bush White House, or with other persistent critics of global warming theory. After all, the "secret" Pentagon report on global warming has appeared just five months after the Environmental Protection Agency, at the instruction of the White House, deleted the entire chapter on global climate change from its annual report on air pollution, and for the first time in six years made no reference at all to the problem in that report. Perhaps the Adminstration's insouciance explains why the Pentagon report was leaked in the first place -- certainly it would have done little good, locked up forever in some classified vault. The leak probably would also not have harmed the stock prices of certain hydrogen-related investments - assuming there are any.

All told, the report does offer a pretty nightmarish set of scenarios. Less polite commentators might also apply words like "pseudo-scientific." Evidently there's no real effort here to build a complex forecasting model, and no way to the scenarios that were constructed, other than to double-check their internal consistency. Even if there had been an effort to construct a full simultaneous-equation system, our actual knowledge of underlying natural and economic relationships is often so weak that the game is often not worth the candle. One is reminded of the disparity in forecasting performance between the huge, complicated, multi-equation econometric models that try to specify detailed relationships about what is really going on, and simple one-line autoregressive models -- the latter routinely outperform the former. So "theory" is neither necessary nor sufficient for prediction. And the Pentagon report, as Schwartz is wont to say, is happy just to provide "scenarios," not forecasts.

Despite this limitation, a good hard-hitting, logical scenario can be very useful as a way of galvanizing pubic attention. At this point, pending the declassification and release of the full study, it is impossible to judge its real quality. Still, perhaps Andrew Marshall really just wanted enough "meat on the bone" to make his underlings think, call attention to the wide range of potential outcomes, or -- who knows -- perhaps even to toss a bone to the President's opponents, for reasons of their own. I suspect that what the Pentagon planners really got for their money was not much more than a wild-eyed Hollywood script and a few days of media attention for their long-run thinking. Beyond that, they almost certainly did obtain a release from the straightjacket of "competitive strategy" and their really quite restrictive ultra assumptions.

CONCLUSION

So what do we conclude from all this? Stepping back from the Pentagon report's apocalyptics, it does concur, in broad strokes, with the growing sense of urgency among many professional scientists about global warming, and our own sense that the case for taking action is now stronger than ever.

For example, the UK's chief science advisor, Professor Sir David King also stated just last monththat he now sees global warming as a much larger threat than terrorism, and he condemned the Bush Administration for "failing to take up the challenge of global warming."

Whether we really needed the "graphic arts" of Schwartz and Randall's detailed scenarios to drive this home is not clear. The point is that the time for preventive action is here.

Unfortunately, this being a US election year, with many people still preoccupied with jobs, health insurance, Social Security, and the costs of education, let along Iraq and terrorism, we are unlikely to find many politicians who are willing to give this issue top billing. After all, they'd have start with the basic fact that, with just 4 percent of the world's population, the US still generates at least 20-25 percent of the world's greenhouse gas emissions. And then they'd have to move on to discuss the purgative diet of tax increases, emissions controls, other regulations and new investments that would be required to cut this fraction significantly. Having failed to tackle this issue for so long, through Democratic and Republican Administrations alike, by the time we get around to it, the solution will be no doubt very costly. The only consolation is that if there is anything to the Pentagon scenarios, the alternatives could be even worse.

***

©James S. Henry, SubmergingMarkets.Com, 2004. All rights reserved. Not for reproduction or other use with express consent.

March 1, 2004 at 07:00 AM | Permalink | Comments (2) | TrackBack

Sunday, February 01, 2004

Third (and First) World Ferry Accidents – “Tragic Misfortunes” or Predictable Consequences?

Printable PDF Version

News Flash! - Another Tragic Ferry Accident in the Congo! - Hundreds Missing!
Ferry Accident on Zambezi Claims 18 Lives!
Flash! - Ferry Mishap in Bangladesh, 300 Feared Dead!
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Evidently January 31st is not the best day of the year to take a ferry ride. This marks the 50th anniversary of one of the worst ferry disasters in the UK’s history – the 1953 sinking of the Princess Victoria, a British Rail car ferry that was caught out in unusually stormy seas in the Irish Sea, with the loss of 130 lives. And just today (1/31/2004), in northwest Congo, an overloaded ferry caught fire and sank on the Congo with the loss of at least 200 lives.
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Such ferry mishaps have long been a staple item of disaster news all over the globe. With few exceptions, most conventional media coverage presents them -- and of course all the damage done by mudslides, forest fires, and earthquakes as well -- as "tragic accidents," the almost-unavoidable byproducts of happenstantial factors like overcrowding, bad weather, crew mistakes, fires, and collisions that are (ala Les Liason Dangereux)"beyond our control."

However, a closer look reveals that more systemic factors are also at work, not only in the Third World, but also in the First.


STATEN ISLAND “MISHAP”?

The Staten Island Ferry, the US’ second most popular, is normally safe and reliable. It carries an average of 70,000 people back and forth each day to Manhattan. So New Yorkers were suitably shocked last October when the 3335-ton ferry plowed into the docks on Staten Island at 17 knots, killing 11 people and injuring at least 42.

As a result, financially-strapped New York City has already been sued for more than $3 billion in damages, and has had to ask a court to invoke a maritime statute that may limit its liability to the value of the vessel -- a paltry $14.4 million.

But this limitation could depend on where the blame is ultimately placed. Initially the City tried to place it entirely on individual crew members – for example, a possible medication-induced blackout by the pilot, the alleged absence of the ferry’s captain from the wheelhouse, and the possibility that other crew members may have been playing cards rather than keeping watch.

However, since Federal prosecutors and the US Department of Transportation’s (DOT’s) National Transportation Safety Board have entered the investigation, it seems that other more systemic contributing factors are emerging. These include the Port Captain’s alleged failure to distribute and enforce safety rules, the absence of state-of-the-art navigational equipment and warning systems that are routinely used, for example, on Seattle’s ferries, and inadequate training programs for crew members. There also appears to be a general pattern of nepotism and corruption in the management of the entire Staten Island ferry system.

While it is premature to reach final conclusions about the relative influence of these various factors, it is already clear that the "pure accident" theory of this event -- the worst accident in Staten Island Ferry history -- is inadequate.

THIRD WORLD FERRY “ACCIDENTS”?

The residents of sub-Saharan Africa, as well as countries like Bangladesh, the Philippines, Indonesia, and China, are intimately familiar with all these pathologies. They must have marveled at the attention that was showered on the comparatively small Staten Island accident by the global media. After all, these countries routinely suffer ferry accidents that take hundreds and even thousands of lives.
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We’ve already noted the latest Congo River mishap. A cursory review of other accident reports shows that in 2003 alone, another Congo ferry “accident” claimed 163 lives, one in Bangladesh claimed “hundreds,” and there were others in Tanzania, Somalia, Zambia, and Burundi that took an average of fifty lives each. In 2002, yet another Bangladesh ferry “accident” claimed 300 lives, one in Indonesia took 60, and in Senegal, a ferry loaded with 1800 people, twice its capacity, flipped over, with no survivors. There have been literally hundreds of other such sinkings. The all-time record appears to have been a Philippines sinking in 1987 that claimed 4,341 lives – the greatest number of ocean fatalities in nautical history.

Of course any one of these incidents, taken in isolation, may be understood as a “tragic mishap.” But from a slight distance, what is most striking is how repetitive they are – not only in terms of the specific countries involved, but also the very same locations in the rivers and oceans, the very same ferry owners, the same regulatory authorities, and in some cases even the same (salvaged) vessels.

(Indeed, in the case of the Staten Island Ferry, the most recent 2003 incident had similar, though much less costly, precursors in 1998, 1992, 1978, and perhaps others.)

All this suggests that, as is now coming to light in Staten Island, what we have here are not just random accidents and errors, but recurrent market and regulatory failures.

In particular, the fact is that, especially (but not exclusively) in the developing world, ferry owners – whether public or private -- almost never face any substantial civil liabilities or criminal sanctions for such mishaps after the fact, and the safety and training regulations that they implement before the fact are often wanting. Furthermore, as in the case of New York City’s efforts to limit liability, lawsuits in these countries may not afford any adequate relief where ferries are state-owned. And pursuing them is also often beyond the means of the victims' families.

Given this after-the-fact impunity, there is little incentive for ferry owners or managers to enforce restrictions against overcrowding, or to invest in adequate crew screening, training, and drug testing, as well as up-to-date navigational and safety equipment. New Yorkers, be warned….

The implication is that unless such conditions change, those of us who relish a regular diet of “tragic ferry accidents,” especially from the Third World, are unlikely to be disappointed. “Oh, the horror…..”

***

© James S. Henry, 2004. SubmergingMarkets.Com


February 1, 2004 at 02:15 AM | Permalink | Comments (1) | TrackBack

Wednesday, November 19, 2003

First World Criminals, Third World Crimes – A Review of Recent International Corruption Cases – Part 3: High Crimes In Lesotho

Printable PDF Version Lesotho's Katse Dam fig. 2.32. Katse Dam, Lesotho.jpg lahmeyer.gif Schneiderlogo.gif ABB_Logo.gif dumez-gtm.gif acres_intl.JPG logo_bouygues.gif


As noted in Part 1 of this series, in the last six months we have seen a flurry of transnational corruption cases that involve misbehavior by leading First World companies in developing countries. All these cases raise basic questions about our current approach to investigating, prosecuting, and penalizing transnational corruption – and our understanding of its roots.

The following article, Part 3 in this series, takes a close look at another recent case, Lesotho’s Highland Water Project (LHWP), a huge World Bank-financed dam project where a half dozen leading Canadian and European engineering and construction firms are now being prosecuted for bribery by one of southern Africa’s smallest, most poverty-stricken countries.

This particular case suggests that, in principle, First World development banks and export credit agencies are in a very strong position to curb this kind of behavior, simply by insisting on tight financial controls and penalizing bribery heavily. So far, however, they have been reluctant to do so, apparently because they are reluctant to offend their First World constituents. After all, if politically-influential engineering firms, equipment vendors, and construction companies won’t lobby for their budgets and lending authority, who will?



THE PROJECT. Next to China’s gargantuan Three Gorges Dam, Lesotho’s Highland Water Project (LHWP) is the world’s second largest water transfer project and Africa’s largest dam project ever. In the finest traditions of hubristic civil engineering, the project’s design contemplates a thirty-year effort to build five big dams and a hydro plant in Lesothu’s Maluti Mountains, eventually diverting nearly half of the water – 2 billion cubic meters a year -- from the Orange River (known in Lesotho as the “Senqunyane River” basin) through 125 miles of tunnels to Johannesburg’s Vaal Dam.
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The basic project concept, which dates back at least to the 1930s, is simple. Lesotho, an otherwise tiny, poor, landlocked, mountainous kingdom, is known as “The Kingdom in the Sky,” the only country in the world that is all above one thousand meters. The country is also entirely surrounded by, and dependent upon, its much wealthier neighbor, South Africa. Most of Lesotho’s 2.2 million people either work as subsistence farmers at home or as migrants in South Africa, which provides jobs for half of Lesotho’s labor force. Aside from these labor exports, one of Lesotho’s few other natural resources is the abundant rainfall that its mountains receive each summer. Johannesburg’s mines and other industries, on the other hand, account for sixty percent of South Africa’s economy, and are always hungry for cheap water and energy, as well as cheap labor.

In South Africa’s view, all this provided the basis for what appeared to be a “win-win” deal. LHWP was originally designed by South African-retained engineers in the 1970s, and the project agreement was “jointly approved” by the two countries in 1986. Back then -- and of course until 1994 -- South Africa was still an apartheid state, ruled by “whites only,” who accounted for just 14 percent of its population. And Lesotho was ruled by a compliant military regime that South Africa had installed only a few months before the LWHP agreement was signed.

These anti-democratic roots did not bother the “global development industry” very much at the time. This industry consists of multilateral development banks and aid agencies, private banks, engineering design firms, equipment vendors, and construction firms, mainly from First World countries and a handful of larger Third World countries, like Brazil and China. We’ll review the “private perp” list below, but among the leading development banks and export credit agencies that agreed to fund this multibillion dollar hydro boondoggle concocted by South Africa's apartheid planners were the World Bank, Canada’s EDG, the African Development Bank, the UK’s EGCD, France’s COFACE, Italy’s SACE, and Germany ‘s HERMES. Germany, France, and the UK also provided bilateral foreign aid to the project – an indirect way of channeling subsidies to their own politically-influential contractors.

All told, this global development industry has constructed more than 45,000 large dams in developing countries since the early 20th century, at a cost of more than $2 trillion, the resettlement of at least 50 million people, and untold environmental damage. Indeed, despite the fact that “large dams” have recently become much more controversial among development planners and environmentalists, this industry still builds about 1500 to 2000 new Third World dams per year.
See Chart:"Big Dams Per Year"

In the last decade, with the rise of more democratic regimes in leading developing countries like South Africa, Brazil and Russia, First World governments and development banks were essentially compelled to emit more favorable noises about “democracy” and “transparency” -- except with respect to China, where they continued to look the other way at autocracy. In fact, the reality is that the global development industry and its financial supporters actually do much better in situations where popular concerns like forced resettlement, land ownership, the appropriate pricing of natural resources and electricity, soil erosion, and other environmental concerns are subordinated to the priorities of organized interests. This is one key reason for the strong negative correlation between “big dam projects” and democratic development.

In any case, in Lesotho’s case, those who designed LHWP and structured its finances back in the 1980s did not worry very much about the fact that, at the time, they were in gross violation of international sanctions against apartheid. Instead, a group of clever merchant bankers at Chartered WestLB, a leading UK international merchant bank, consulted with the World Bank and got its approval to make pint-sized Lesotho the $8 billion project’s official borrower -- with South Africa kicking back debt service and water royalties under the table to a London-based trust.

This arrangement, in effect, “laundered” LHWP's finances, opening the door to the global pig pile of development funders, private banks, vendors and contractors that we listed earlier. At the time, these players could basically have cared less whether the project served to undermine apartheid or quenched its thirst for water and electricity forever. Meanwhile, Lesotho’s official foreign debt was sent soaring, and the potential contractors started arriving in droves to flog their wares and exert influence any way they could.

Two decades later, as of 2003, this bevy of contractors has finished the Katse and Muela dams and 53 miles of tunnels, at a total cost of $2.5 billion. Mohale Dam is due in 2004, for an additional $1 billion, followed by the Mashai dam by 2008 and the final Tsoelike dam by 2017. As noted, the total cost is supposed to be $8 billion by then -- though such cost estimates are rarely worth the paper they are printed on.See Chart: "Average Big Dam Cost Overruns"

Unfortunately KHWP has also hit a few snags. To begin with, the people of Lesotho have been having second thoughts about parting with so much of their water on such one-sided, apartheid era terms. There have also been some nasty side-effects. In January 1996, for example, the sheer weight of Katse Dam’s reservoir helped to cause earthquakes in Lesotho that shook many villages. In September 1996, 2,300 workers at Muela Dam were fired for striking illegally when they protested lousy working conditions and wage discrimination. Contractors, including the UK’s Balfour Beatty, called in the police and 5 workers at their camp were shot dead and 30 injured. In 1998, partly to deter a possible military coup, but also to remind Lesotho that LHWP was, after all, South Africa’s largest infrastructure investment, the “New South Africa” invaded Lesotho, killing 66 people to “restore order.” The Johannesburg Star later reported that protecting the dam had been one of the invasion’s primary concerns. There has also been a long list of environmental, distributional, and social problems associated with KHWP – with complaints from dam critics about some 24,000 people displaced without adequate compensation for resettlement, and increased erosion.

ANTI-BRIBERY WINDOW-DRESSING. Most interesting for the purposes of this article, LHWP has also turned out to make history in the field of global corruption, and the enforcement – or lack thereof – of “anti-bribery” statutes by First World governments, multilateral lenders, and export credit agencies.

The roots of these statutes, which have by now been widely adopted by most First World countries, goes back to the US Foreign Corrupt Practices Act (FCPA) of 1977. This statute, which was pushed through Congress during the relatively high-minded Carter Administration, has provided American officials with numerous opportunities to lecture their counterparts in Europe and Asia on the importance of taking a strong stand against Third World corruption. (The Europeans and Asians responded, with some justification, that US firms were hardly sin-free, and besides, that any excessive bribery on their parts just offset the substantial US advantage in industrial espionage provided by global electronic eavesdropping networks like the National Security Agency's Echelon system -- the fruits of which are increasingly shared with the private sector.)

In reality, the FCPA's actual enforcement has never been a priority for any US administration -- there are few votes in it, since most of the victims are located in distant lands, and most of the perpetrators are major homeland corporations. Since 1977, there has only been one sizeable fine – a $21.8 million charge levied on Lockheed in 1994 for paying bribes to win Egyptian defense contracts. Beyond this, there have only been 34 US criminal prosecutions under the FCPA in 36 years, with the median fine levied on 28 convicted corporations a mere $50,000. Just three out of 12 convicted US foreign bribers have ever done any jail time – a total of 34 months for all three! On top of all this, a federal court ruled in 2002 that the FCPA did not even apply to cases where US companies pay off foreign officials to cut taxes or customs duties – in the case at hand, a Haitian customs official who had been bribed by a major Texas-based rice exporter. According to this ruling, the FCPA only prohibits bribes made to “obtain or retain business.”

Nevertheless, over the next two decades following the FCPA’s adoption by the US, pressures for the transnationalization of sanctions against corruption grew, propelled in part by the sheer number of abusive projects that came to light all over the world. Organizations like Transparency International, started to publish a “corruption index,” an annual ranking that claimed to identify the world’s “most corrupt” countries, all of which turned out to be developing countries. fig. 2.27. James Wolfensohn, World Bank President.jpg
The World Bank also adopted new guidelines on corruption that were supposed to crack down on contractor/ vendor bribery. At the Annual World Bank Meetings in Washington, D.C. in October 1996, for example, World Bank President James Wolfensohn declared:

Let me emphasize that the Bank Group will not tolerate corruption in the programs that we support; and we are taking steps to ensure that our own activities continue to meet the highest standards of probity.

In 1999, responding in part to complaints from developing countries, as well the US' continuing whining that America’s global competitiveness was suffering because of the failure of other First World countries to adopt similar statutes, all but two OECD countries adopted a new treaty that provided for increased penalties for First World companies that bribe foreign officials.

Despite these new laws, indices, and declarations, however, the fact is that until the LHWP case exploded in 1999, there had been very little actual enforcement of such rules against bribery, especially against leading First World bribers and their money launderers – major First World construction companies, engineering firms, energy companies, equipment suppliers, banks, and other leading members of the huge global development industry.

This is partly just because it is hard to follow the money trail through the global thicket of offshore companies, secret trusts and bank accounts, and havens. However, as we’ll see, even tiny Lesotho was able to break through Swiss and Panamanian banking secrecy in less than two years and make a winning case against some of the world’s largest contractors.

The more important obstacle seems to be the fact that, when push comes to shove, many First World countries, export credit agencies, and multilateral donors appear to be deeply conflicted about how hard they wish to pursue the enforcement of such rules against the bribers, as opposed to the “corrupt” local officials. They appear to be concerned not only about alienating influential allies, but also about disrupting the flow of large projects. They may also be concerned that if they really looked hard at what has been going on around them, some of the revelations might be too hot to handle. (See Part 4 - The SGS Case.)

THE LESOTHO CASE. In July 1999, tiny Lesotho charged its former CEO for the Lesotho Highlands Project, Masupha Sole, with receiving more than $2.5 million in bribes by way of Swiss accounts, from almost all the key contractors involved in LWHP’s first three dams.

A Canadian-trained engineer, Sole had been Lesotho’s highest-paid public official when he was put on leave in 1995, pending the outcome of this investigation. He had worked as a director in Lesotho’s Department of Water, Lands, and Energy until October 1986, when he was appointed first CEO of the Lesotho Highlands Development Authority, the contracting agent for the project.

In that capacity, Sole had overseen all the tenders for the project. Everything had proceeded quietly until a new Minister of Natural Resources decided to hire Ernst and Young to audit LHWP’s account in 1994. The audit turned up discrepancies, and further investigation revealed that Sole had received large transfers to his Johannesburg bank accounts from accounts in his name at three Swiss banksUnion Bancaire Prive and Banque MultiCommercial in Geneva, and UBS in Zurich.

With the help of Durban lawyers, Lesotho managed to track down precisely who had paid bribes and how the money had flowed. The astonishing indictment listed all those international contractors and provided initial estimates of the amounts they’d paid:




    o Zublin - $444, 466, plus its share of $57,269 paid by LHPC and LHPC-Chantiers’ $63,959
    o Impregilo - $250,000, plus its share of $733,404 paid by the HWV consortium
    o Acres International - $260,000
    o Spie Batignolles - $119,393, plus its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o Dumez - $82,422
    o ABB - $40, 410
    o Sogreah - $13,578, plus its share of LHPC-Chantiers’ $63,959
    o Lahmeyer/ RWE- $8,674
    o Diwi - $2,439
    o Balfour Beatty – its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o LTA - its share of LHPC’s $57,269 and LHPC-Chantiers’ $63,959
    o Hochtief - its share of $733,404 paid by the HWV consortium
    o Bouygues - its share of $733,404 paid by the HWV consortium
    o Keir Int’l - its share of $733,404 paid by the HWV consortium
    o Stirling Int’l - its share of $733,404 paid by the HWV consortium
    o Concor - its share of $733,404 paid by the HWV consortium
    o Sir Alex Gibb – its share of the LHPC-Chantiers’ $63,959
    o Coyne & Bellier - its share of the LHPC-Chantiers’ $63,959
    o Knight Piesold - its share of the LHPC-Chantiers’ $63,959


In August 1999, Lesotho courageously decided to prosecute 14 of these companies, plus three French and South African intermediaries that had helped to provide “safe escort” for the bribes.

Swiss authorities, who decided to help Lesotho for reasons that may actually include a sudden surge of ethical responsibility, also found that at least 14 companies had made deposits to these accounts by way of two Panama shell companies and other accounts in the Channel Islands, all of which had been set up by one of Panama’s leading law firms, Morgan y Morgan. The haven-neering employed was surprisingly crude – whoever structured the bribe path neglected to add extra layers upstream to conceal the payors’ identities, and had also made the gross error of setting up Swiss accounts in Sole’s name and transferring funds directly to him. The two Panamanian shell companies used as conduits were Universal Development Corp (UDC) and Electro Power Corporation.

UDC had been created by Morgan y Morgan way back in December 1981, under the control of a French agent, one Max Cohen, who had worked with Spie Batignolles on numerous other projects. It was only dissolved on September 2, 1998, when Cohen got wind of the Lesotho investigation. Its sheer longetivity is just one indication that Lesotho was probably not these contractors' only victim. Electro Power Corporation, also under the control of Les Grand Messieur Cohen, was created in October 1989, and was dissolved on September 2, 1998. UDC and Electro Power had their own accounts at UBS and Union Banque Privee in Jersey and Switzerland. The funds flowed from the contractors’ banks to the bank accounts of these two companies, then on to Sole’s Swiss accounts, and finally to his accounts at Standard Bank in Johannesburg.

In any case, except for ABB, whose Chairman Goren Lindahl admitted knowing about “the problems” in Lesotho since at least 1987, and agreed to cooperate with authorities, all the contractors vehemently protested their innocence. They were not so worried about the fines that Lesotho might impose. What really caused them sleepness nights was the fear that the World Bank, in particular, might exclude them from the $7 to $10 billion of loans and credits that it still distributes each year to Third World infrastructure projects.

In May 2002, after a year-long trial, Sole was convicted on 11 counts of bribery and 2 counts of fraud in Lesotho High Court, and sentenced to 18 years in prison. The court concluded that he had taken payments from the international contractors and agreed “to further their private interests.” In March 1991, for example, just one month before a key contract worth more than $250 million dollars was signed with one of the two key consortia in the case, the court found that the consortium had paid him more than $1.2 million by way of the secret accounts.

THE LINE-UP. Sole’s conviction set the stage for Lesotho's prosecution of the companies, and a frustrating effort to have them blacklisted from bidding on contracts in international development projects.

In October, 2002, after a seven-month trial, Canada’s Acres International, a leading engineering services firm, was convicted of bribing Sole with $260,000, and fined $2.2 million. 66 As the presiding judge commented, “This is the first time a first world company operating in the third world has been convicted of bribing a public official.” As Lesotho’s Attorney General explained, “The attitude has always been that Africans are corrupt. We want rich world corporations and countries to acknowledge their role. "We are telling them it that it is no longer business as usual.”

Following the conviction, Acres International continued to deny any involvement in the bribes. But in August 2003, the conviction was affirmed by Lesotho’s highest court, although it did reduce the fine from $2.2 million to $1.5 million. Nevertheless, in November 2003, NGOs around the world were compelled to decry the refusal by Export Development Canada (EDG), that country’s export finance agency, to bar Acres from future contracts.

In August 2003, Lahmeyer International, another leading construction engineering company that is owned by RWE AG, one of Germany’s top five companies, was convicted and fined in the same Lesotho bribery case. Other German firms involved in the case include Hochtief, another RWE AG company, and Diwi Consulting, an engineering company.

Many other leading companies are also awaiting trial. So far the “transnational perp walk" in Lesotho includes the following companies:

~France’s Schneider Electric, one of the world’s largest electrical distribution companies, has been implicated in the case by way of its acquired company, Spie Batignolles. It is awaiting trial. Other French firms also awaiting trial in the case include Dumez International, another leading engineering firm that is now a subsidiary of Suez-Lyonnaise-Eaux; and Bouygues, a construction and media giant.

~Switzerland’s ABB, a giant industrial conglomerate and power equipment supplier, has also been accused of bribery in the case, and is awaiting trial.

~Many other firms have been charged indirectly, as members of the project consortium that led the project and allegedly made payoffs. These including Italy’s Impreglio SPa, owned by the Fiat Group; the UK’s Balfour Beatty, Stirling International Civil Engineering Ltd., Mott McDonald, Sir Alexander Gibb and Partners Ltd, Kier International Ltd., Kvaerner Boving Ltd., ABB Generation (UK). and Knight Piesold; Germany’s Hochtief (RWE) and Zublin AG; France’s Coyne et Belier, GEC Alstom, Campenon Bernard, and Sogreah; and South Africa’s own Concor and LTA.

~These firms were also assisted by several leading international private banks, including the UK’s merchant banks Chartered WestLB and Hill Samuel, France’s BNP and Credit Lyonnais, Germany’s Dresdner Bank , and all five top South African Banks.

RECIDIVISTS. Interestingly, quite a few of these firms are recidivists -- Lesotho is not the first time that they’ve been involved in shady Third World construction projects. This is yet another indication of just how inadequate legal sanctions and enforcement with respect to such transnational crimes really are.

~In the early 1990s, for example, the UK's Knight Piesold (backed by the ECGD, the UK’s export credit agency, Spie Batignolles, and Sogreah, as well as GE Alsthom and Norconsult, were also involved in Kenya’s notorious Turkwell Gorge dam, later described by Kenya’s press as “the whitest of white elephants” and “a stinking scandal.” Knight Piesold was also the lead designer for Kenya’s poorly-conceived Ewaso Ngiro dam project.

fig. 2.30. Turkwell Dam, Kenya.jpg

~Balfour Beatty was also prime contractor for a corruption-ridden project in Singapore, and the Pergau dam in Malaysia, for which Balfour’s Chairman inadvertently bragged to a British journalist that he had personally handed over the requisite bribes to Malaysian officials.

~Impregilo SPa and Dumez were prime contractors, and Lahmeyer a leading member of the consortium responsible for the disastrous $12 billion Yacryeta hydro dam on the Parana River in Paraguay, still unfinished after 20 years -- even former Argentine President Carlos Menem called a “monument to corruption,” with over $6 billion of funds completely missing.
fig. 2.19. Yacyreta Dam.JPG

~Fiat’s Impregilo SPa was also prime contractor on Honduras’ costly El Cajon hydro dam, and Guatemala’s notorious Chixoy Dam, where it was also assisted by Lahmeyer and Hochtief.

~ABB has supplied turbines and power generation equipment to numerous Third World dam disasters, including the disastrous Tucurui hydro dam in the Amazon. fig. 2.9. Tucurui Dam.jpg

THE WORLD BANK’S RESPONSE? One might have thought that the World Bank, for all of its recent rhetoric about “transparency” and “fighting corruption,” would have taken swift action in this case. However, in February 2002, eager to get on with the project, the World Bank reported that its own internal investigation had dismissed the bribery claims against all fourteen contractors charged by Lesotho for “lack of evidence,” and it refused to blacklist any of them from future projects. The World Bank also presented a new, narrower interpretation of its own rules.

According to this new standard, only if it were shown that bribes actually make use of World Bank money, or are related to a portion of a project directly funded by the Bank, would briber-companies involved be blacklisted. One only has to ponder this for a minute to understand how wide a loophole it creates.

So, while the World Bank currently lists some 78 contractors on its “Ineligible List,”as of late 2003 this list still contains none of the LHWP contractors, after more than three years of court hearings, and no major international contractors, vendors, or banks at all. Nor, for that matter, have there been any sanctions imposed by any other development banks, or export finance agencies -- indeed, in the case of the US and the UK, there have never been any sanctions imposed by export credit agencies because of allegations, suspicions or evidence of corruption.

Undoubtedly the World Bank, other development banks, and the export credit agencies all face intense pressures from leading First World countries – the World Bank’s “shareholders” -- to maintain the eligibility of key contractors. Apparently the World Bank also cares a great deal about seeing the big projects that it finances move along as quickly as possible.

Indeed, in Lesotho’s case, leaked correspondence between the World Bank and Lesotho’s government revealed that the World Bank had known about the Sole investigation as early as 1994. Its reaction? World Bank officials expressed great concern to Lesotho’s authorities that by suspending Sole, they might slow the project down.

***

(c) James S. Henry 2003. Not for quotation or reproduction without express consent from the author.

November 19, 2003 at 05:40 PM | Permalink | Comments (2) | TrackBack

Monday, November 17, 2003

First World Criminals, Third World Crimes - Part 2: France's Heart of Darkness: The ELF Story.

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Loik Le Floch-Prigent


On November 13-14, 2003, the former CEO Loik Le Floch-Prigent and 22 other former executives of France’s Elf Aquitaine, plus seven other accessories, were sentenced by a French court to a few €millions in fines and no more than 5 years apiece in jail –- 14 of the accused got suspended sentences -- on charges that they had embezzled €300 million ($346.8 million) from the company from 1989 to 1993. These sentences, the culmination of an investigation that started in August 1994, determined that most of these thefts had been skimmed from secret slush funds managed out of Switzerland, Luxembourg, and Liechtenstein.

From our standpoint, the key fact is that these secret funds had originally been created in order to pay up to $130 million of bribes a year to senior officials in African countries like Gabon, Congo-Brazzaville, Cameroon, Angola, Guinea, and the Congo, as well as in Venezuela, Russia, Taiwan, Central Asia, China, Uzbekistan, and Kazakhstan.

Significantly, this extraordinary global corruption eventually “blew back” to France itself, where, according to Le Floch-Prigent, Elf paid at least €5 -€20 million in bribes per year to France’s leading politicians, ministers, and political parties -- not only Gaullist parties like Chirac’s RPR/UMP party, and former Interior Minister Charles Pasqua’s RPF, but also the Socialists and other parties.

Even after this extraordinary 9-year trial, we still lack much of the detail on precisely where all this payola went. However, as usual, some things can be said.

chirac-de-gaulle.jpg

de Gaulle and Chiraq


To begin with, it appears that most of Elf's transgressions were committed with the knowledge and tacit or active approval of every French President from Charles de Gaulle on down to Chirac, after de Gaulle created Elf and the original “black box” system in the 1960s.

In addition to these domestic political subsidies, Elf also paid out an extraordinary amount of personal payola to France’s political elite – including free airfare, sweetheart deals and payoffs for ex-wives and girlfriends, and fancy apartments. For example, when President Mitterrand's weekly golfing partner was threatened with losing his house near their favorite golf course, Elf bought the house and let him continue living there, all expenses paid.
mitterand.jpg

Francois Mitterand


Many of the key figures involved with these funds turned out to have top-level connections in the French government. After his stint at Elf ended in 1993, its former CEO, Le Floch-Prigent, was appointed by Mitterand and Jacques Chirac to serve as head of the state-owned utility Gaz de France and SCNF, the French National Railroad. Roland Dumas, President Francois Mitterand’s close friend and Foreign Minister in the 1980s, was convicted in 2001 of receiving Elf bribes in connection with an arms sales to Taiwan – though the conviction was overturned on a technicality in 2003.
Tarallo.jpegAndre Tarallo was a close friend and former classmate of French President Jacques Chirac (Ecole Nationale d'Administration, class of ’59), and an Elf employee since 1967.

From our standpoint, Tarallo is an especially important figure. During the course of his long career, he became known as Elf’s “Monsieur Afrique,” the “real boss of Elf-Afrique,” in charge of the company’s relationships with corrupt regimes all over Africa. Meanwhile, he also helped himself to $27 million worth of property, including a mansion in Corsica and one of the largest apartments in Paris. For all these efforts, 74-year old Tarallo received a four-year sentence and a €2 million fine.

This huge case has been nine years in the making. As it slowly wended its way to a conclusion, many cynics predicted that because the case is one of France’s most sensational corruption scandal ever,few convictions would ever be seen. However, mainly because of the perseverance of a handful of courageous judges and magistrates in France and Switzerland, the embezzlement charges ultimately stuck. But for evidentiary reasons as well as “pour raison d’Etat,” the French court limited the investigation to personal enrichment by Elf’s own officials. When it came to exposing the details of the many bribes paid in the Third World and the First, they drew a complete blank.
SirvenAlfred.jpg

Alfred Sirven

As noted, because of the sensitive nature of Elf’s payoffs, we are unlikely to ever learn the full story. Nevertheless, it is already clear from many other sources that Elf – France’s largest multinational company at the time, with owned refineries and gas stations throughout Europe, Africa and the West Indies -- became a cornucopia of global corruption. As Alfred Sirven, Elf’s second-in-command in the early 1990s, and the former head of Elf’s Geneva office, said at the trial this year, “I know enough to eliminate the whole French political class.” Or as the former CEO, Loik Le Floch-Prigent, said, “If the money sometimes ended up in an orphanage then I am very happy - but let's say it didn't always end up in an orphanage.”

OmarBongoGabon.jpg

Gabon's Bongo


Among Elf’s many unsavory activities around the globe: (1) Elf developed incestuous, mutually profitable relationships with key African autocrats like Omar Bongo, Gabon’s ruler, the Congo-Brazzaville’s Sassou Nguesso, the Cameroon’s Paul Biya, PaulBiyaCameroon.jpg>

Cameroon's Biya

Jonas Savimbi, the Angolan rebel leader; Jose Eduardo dos Santos, Angola’s “Marxist” President; and Nigeria’s Sani Abacha.
SassouNGuessoCongo.jpg

Congo's Nguesso


DosSantos.jpg

Angola's dos Santos

For example, according to an investigating magistrate, $30-$50 million a year was placed in a secret bank account belonging jointly to Bongo and Tarallo, his close friend, and Bongo’s Presidential Guard was partly paid for by Elf. In Congo-Brazzaville, where Elf has lucrative refineries and other concessions, it supplied helicopters and financed arms supplies for rival leaders. In Nigeria, it reportedly paid bribes to secure a lucrative oil concession in 1995. All told, according to the French magistrate, Elf ran "a vast and opaque system aimed at paying commissions, via intermediaries, to certain African personalities.” saniabacha_and_kofi_annan.jpg

Kofi and Sani

fig. 3.1. Carlos Andres Perez.JPG

Carlos Andres Perez


(2) Elf allegedly paid $2.5 million in bribes to Venezuela’s President Carlos Andres Perez and other Venezuelan politicians in 1991-92, part of some $20 million in commissions that Elf was alleged to have spent in Venezuela.

(3) Elf allegedly made still more payoffs in China and Taiwan in connection with a 1991 arms deal – including millions of dollars that were allegedly paid to Zhu Rongii, the former Mayor of Shanghai who served as China’s Premier from 1998 to 2003, and to Foreign Minister Dumas, to secure their tacit approval for the deal. ZhuandClinton.jpg

Zhu Rongii and Clinton


These payments were reportedly made by Elf’s network in connection with the sale of six frigates to Taiwan by Thompson-CSF, another French company, in 1991. On this deal alone, the commissions reportedly totaled more than 30 percent of the $2.5 billion purchase price.

(4) Elf also allegedly made huge payoffs to Nadhmi Auchi, an obscure Iraqi-British billionaire who is reputedly Britain’s seventh wealthiest man, the largest shareholder in BNP Paribas, and – according to some – one of Saddam Hussein’s oldest cronies and private bankers. (They both took part in the attempted assassination of Iraqi leader Abdul Karim Qasim in October 1959.).
auchi.jpg

Nadhmi Auchi


The Elf payoffs to Auchi, which he reportedly passed on to Spanish politicians and partly kicked back to Elf officials, were made in connection with its 1991 purchase of Ertoil, a Kuwaiti-owned oil refinery in Spain. Auchi, one of the 37 people charged by the French court, was given a two-year suspended sentence and fined £1.4 million, after having been found guilty of accepting illegal commissions from Elf worth $84 million.

(5) Meanwhile, back in the First World, Elf also allegedly paid at least €47 million ($54.8 million) in commissions to senior German ministers and a slush fund for former German Chancellor Helmut Kohl’s Christian Democratic (CDU) Party.

fig. 2.3. Dr. Dr. Batliner and Helmut Kohl.jpg

"Kohl and Liechtenstein Money Man"

These payments were made in connection with a corrupt privatization deal, Elf’s purchase of a chain of gas stations and the Leuna oil refinery in eastern Germany in the early 1990s. Elf received more than €1 billion in German subsidies to help it finance €2.4 billion cost of modernization costs for the refinery. Former Chancellor Kohl denied any involvement in the scandal, and German prosecutors were unable to make a case against him – especially after Kohl’s government destroyed millions of documents and two-thirds of its computer files during the three weeks after the CDU lost the 1998 German elections. However, one of those recently convicted in the November 2003 case in France was Dieter Holzer, a German lobbyist who had handled the refinery. He got 15 months in prison and was ordered to pay a €1.5 million fine and return at least €24 million in commissions.

  • A TOTAL REFORM?
Most of the alleged behavior listed above pertained to the period before Elf was privatized in 1994, and then merged with Total/Fina in 2000. So some have argued that the core problem here was that Elf was simply a corrupt state-owned bureaucracy, at the mercy of French politicians, and that privatization would fix the problem.

Total.gif
However, it turns out that this “neoliberal” view of reform is extraordinarily naive. First, it usually take a long time to change corporate culture and interests. Second, as this recent 9-year Elf prosecution showed, even if senior executives are caught and convicted, the initial “loot” is so large, the investigations are so lengthy and complex, and the ultimate jail sentences and fines for such white collar crimes are so modest under present laws, on a “net present value” basis, crime really does pay quite handsomely.

So it should not be surprising that misbehavior by Elf and its new parent Total S.A. appears to have continued long after privatization. For example:
NazarbaevandClinton.jpg

Nazarbaev and Clinton<


(6) Total S.A. has recently been implicated by the US with participaitng with five other leading oil companies – including ExxonMobil, BP, and Royal Dutch Shell – in a consortium that allegedly paid millions in illegal bribes to Kazahkstan’s President Nazarbaev and former Prime Minister Balgimbaev in the late 1990s, to secure oil concessions.

(7) Elf and Total S.A. have also compiled an unsavory record of dealing with Burma’s SLORC/SPDC, one of the world’s most repressive military regimes. Together with Unocal and Thailand’s National Oil Company, in July 1992 Total struck a deal with the regime to exploit the Yadana offshore gas field, and to build a $1.4 billion gas pipeline across rebel territory to Thailand – with the help of forced labor. Throughout the 1990s, Total S.A. and Unocal were Burma’s largest foreign investors, with the pipeline and a related railroad accounting for more than a third of all foreign investment in Burma, and will provide the military its largest source of foreign exchange other than heroin. The “clean currency” provided by Total and Unocal to the regime helped Burma source mortars in Portugal and helicopters in Poland.

All told, then, what we have here is a clear demonstration of just how contagious corporate corruption can be -- and how it interacts with the power of the state to generate a long-term venal alliance that is extremely hard to unravel, once it is in place. From one standpoint, French justice worked -- after all, all these former Elf senior managers have at least been jailed and fined. But it took almost a decade to catch up with them, and apart from social disgrace, the actual fines and sentences they will suffer are relatively minor, compared with all the hundreds of millions still missing. Moreover, out of all the senior French officials who knew about Elf's behavior and tolerated or encouraged it, only one saw any jail time -- and his conviction was overturned on appeal.

Finally, perhaps the worst damage from this scandal has been suffered by the scores of developing countries where Elf/ Total has long used bribery to wield undue influence. While the names of those Elf bribed are still in many cases secret, we can be sure that this not only tilted public policy unfairly in Elf's favor; it also helped to spread corruption from the First World to the Third, and helped undermine the rule of law in these fragile environments.

So those who blithely criticize developing countries for having "corrupt governments" -- which many of them no doubt do -- might do well to remember the case of Elf. As this tale indicates, the fact is that for more than forty years -- and quite possibly still to this day -- the Government of France joined together with leading French corporations and banks, plus quite a few friendly bankers in Europe's top havens, and made it national policy to foster corruption throughout the developing world, in order to serve its own perceived national interests, and pocket a few bucks for influential insiders on the side. If this does not constitute "crime against humanity," the term has little meaning.

***

(c) James S. Henry 2003. Not for reproduction or other use without express consent from the author.

November 17, 2003 at 02:42 AM | Permalink | Comments (1) | TrackBack

Sunday, November 16, 2003

First World Criminals, Third World Crimes – Recent Transnational Corruption Cases. Part I: Introduction.

Printable PDF Version unocal.jpg elf_acquitaine.jpg Ever since a series of unprecedented corporate scandals erupted in the US in late 2001, students of corporate corruption and First World media have focused mainly on the misbehavior by First World companies, banks, and investment companies in their own backyards. As indicated by the unfinished prosecutions of Enron, Worldcom, and Tyco, plus the recent US mutual fund trading scandals, this kind of big-ticket corporate crime continues to be an important problem.

However, from the standpoint of developing countries, there is even more to learn from a recent flurry of transnational corruption cases that all involve serious criminal misconduct by leading First World multinationals in Third World countries.

The hit parade includes:

  • France’s huge oil company, Elf Aquitaine, formerly France's largest state-owned company, and now part of Total S.A., the world’s fifth largest oil company. Total.gif A French court case that ended just last week has helped to expose a vast network of bribery and corruption that operated throughout Africa, Asia, and Latin America, as well as Europe, for more than four decades -- with the complicity of France's highest officials. (See Part 2.)
  • A half dozen leading Canadian and European engineering and construction firms that are now being prosecuted for briberylahmeyer.gif with respect to a huge World Bank-financed dam project in the tiny African country of Lesotho. As we will see, despite Lesotho's courageous efforts, the World Bank and First World export credit agencies have been reluctant to punish the companies involved. (See Part 3.)
    Schneiderlogo.gifABB_Logo.gifdumez-gtm.gifacres_intl.JPGlogo_bouygues.gifHalliburtonLogo.gif
    ExxonMobilelogo.gif
  • The giant Swiss “trade services” SGS, which has recently been shown by a Swiss court to indeed have been deeply indicted in bribing former Pakistan Prime Minister Benazir Bhutto, and leading members of her government, during both of her two administrations in the 1990s. The resulting bribery scandal may have had a profound impact on Pakistan’s efforts to develop democratic institutions. (See Part 4.)

  • The US’ own Halliburton, Enron, ExxonMobil, and Unocal have all been recently implicated in corruption and human rights violations in several developing countries, including Kazahkstan, Nigeria, India, Brazil, Burma, Equitorial Guinea, Guatemala, and the Philippines. Once again, they have been able to do so with impunity (See Part 5.)
  • Leading global defense contractors, which have recently been implicated in bribery schemes that have had a profound impact on several developing countries – and on the First World as well. (See Part 6.)

This article is the first in a series by Submerging Markets that will examine such cases in detail. One of our objectives is just to tell a few colorful stories. But we believe that there is also a great deal to learn from these cases about the way the world really works. In particular:

  • These cases raise serious questions about the First World’s ability and willingness to prosecute large corporations and banks for bribery, fraud, and other crimes that occur beyond its borders. So long as company managers don't steal from their shareholders (and perhaps even then), they appear to be safe.
  • The cases suggest that existing international mechanisms for prosecuting such corporate crimes are woefully inadequate, and that we need to consider creating the equivalent of an International Criminal Court for transnational corporate crimes. After all, the victims of these crimes are not just relatively-affluent First World investors, but the residents of some of the world’s poorest countries.


  • These cases beg the question of whether the privatization of corruption-ridden state enterprises necessarily reduces corporate misbehavior. They also provide an interesting vantage point from which to assess recent First World criticisms of efforts by countries like Russia and China to crack down on corruption among their own business elites.
  • Most important, these cases suggest that the standard “country by country” approach to understanding international corruption that has been employed by organizations like Transparency International (TI) is inadequate, because it ignores the fact that First World countries - and some leading developing countries -- often exert a profound negative influence on corruption levels far beyond their borders.

Of course, corruption varies with country income levels -- poorer countries have fewer resources for law enforcement, and they also have often suffered from “exploitative states,” which hardly encourages respect for the law. As for "national culture" explanations for corruption, as Alex Gerschenkron used to say, we start out by being suspicious of such "uncaused causes" -- but then one visits Italy! There is a obviously great deal of “petty-ante” corruption throughout the developing world, from the morditas (“bites”) made famous by Mexican and Costa Rican policemen and Nigeria’s “dash,” to Kenya’s “kitu kidogo and “sodas,” to baksheesh in the Middle East. And, as the examples of Russia, Mexico, Argentina, and China demonstrate, there is no shortage of unscrupulous Third World entrepreneurs.

However, as the cases examined in this series illustrate, much of the most heinous transnational corruption involves giant development projects, massive bribes, and secret haven bank accounts, where the transgressions are on such a grand, systematic scale that they require the active connivance of First World banks, transnational companies, and governments. This kind of big-ticket corruption requires a transnational system – a global network, not only of willing bribees in “corrupt” developing countries, but of eager corporate bribers, private bankers, First World government officials and spies, as well as “see-no-evil” development bankers at the World Bank and the IMF. Of course all these folks reside in First World countries that get "top-shelf" rankings every year from Transparency International.

In short, these cases suggest that the standard “neoliberal” approach to corruption and transparency, which emphasizes “institutional reform” at the level of individual countries, may be necessary for political development, but it is certainly not sufficient.

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(c) James S. Henry 2003. Not for reproduction or other use without express consent from the author.

November 16, 2003 at 07:21 PM | Permalink | Comments (0) | TrackBack