Beyond Globalization” – Foreign Trade Sustainability, a Social Responsibility conference
Vitoria, Espirito Santo, Brasil
October 20, 2003
Thank you for the honor of addressing this important gathering. SEBRAE represents many of the key values for building more equitable, sustainable futures in Brasil and Latin America: entrepreneurship, leadership in local development, innovation in both social and technical spheres, social responsibility and best practices in management of small and medium size enterprises, which are the engines at the heart of robust, home-grown, domestic economies. Today, economists are re-assessing their fashionable strategies of export-led national GDP-growth – in the face of a crisis-ridden world economy in need of repair and rebalancing. The traditional economic theories that produced today’s economic globalization are discredited – as are many of its international financial institutions – the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO).
President Luiz Inacio Lula da Silva has emerged as a world leader in pointing to healthier, alternative paths toward sustainable economies, at local, national, regional and global levels. Brasil’s leadership in forming the Group of 21 (now 22) developing nations opened a new era in world trade at the Cancun WTO meeting. No longer will narrowly-calculated trade rules and negotiations trump fairness, higher human values and goals. Brasil’s business community also articulated at Cancun the new model of socially-responsible business management. Ricardo Young Silva of the Instituto Ethos de Empresas e Responsabilidade Social, called for these higher standards of social and economic performance to be incorporated, along with full cost prices and life-cycle costing into WTO rules and accounting practices. The new economics and indicators of sustainable human development and quality-of-life are beginning to call into question the traditional GNP-growth model (see Figure 1, GNP Problems). The social costs, waste and ecological destruction of this obsolete model are now self-evident. The first international conference of world-class statistical experts on these expanded national accounts, ICONS, will convene in Curitiba, October 26-29. (To register, visit www.sustentabilidade.org.br). Brasil’s leaders in these new statistics of sustainability will also showcase their groundbreaking work (see Figure 2 ICONS).
The obsolete neoliberal model applied to world trade, drove World Bank advice, which led developing countries to focus on short-term export-led growth and resulted in many of today’s glutted markets in commodities, from coffee to computer chips. Such short-term strategies, often with tax-holidays, export platforms and reliance on cheap labor, minimum regulations and all the other Washington Consensus policies have led to today’s global “race to the bottom.” In Mexico, some 300 manufacturing plants have moved to China in the past two years. China will soon overtake Mexico as the second largest US trading partner after Canada. China’s labor costs, combined with today’s undervalued renminbe (rmb) are about one quarter of those in Mexico. One cannot blame China, since some 2/3 of all China’s exports to the USA are by US corporations. The longer-term structural focus needed in Mexico must address general education and the skill levels of its workforce to retain its back-office paperwork businesses (still second only to India). Even deeper is the issue that only 1% of inputs to Mexico’s export manufacturing plants are produced in Mexico and little tech transfer occurs in this typical world-trading pattern. Thus, many developing countries, including those like Mexico, in the top tier, are vulnerable to powerful global market rule-makers, corporations, investors and currency speculators they cannot control.
Brasil’s new leadership is addressing these global forces and Washington Consensus rule-makers and their resulting unfair outcomes: wider poverty gaps, subsidies to producers in powerful OECD countries and perverse rules on tariffs, intellectual property and financial services. The new Group of 22 has opened the door to a long struggle between powerful countries, corporations and financial interests versus more numerous, weaker developing countries, smaller and medium-sized enterprises, labor unions and civil society worldwide. These new global dynamics will be driven by electronic networks and mass media and the world’s newest superpower: global public opinion. Here also, Brasil is in the lead. The World Social Forum not only made Porto Alegre into a well-known center of alternative global thinking to rival the Davos-based World Economic Forum – but also another worldwide tourist destination in Brasil. The World Social Forum is typical of 21st Century civil society organization: electronically networked, internet-based, virtual, flexible, with a widely distributed leadership and knowledge base. Similar organizational forms account for the new front-runner against President George W. Bush in the US 2004 election campaign, Dr. Howard Dean, who has raised millions of dollars more than any other official Democratic candidate – via the Internet.
These global forces provide the current context for Latin America and Brasil. The WTO has been weakened, the IMF discredited as too aligned with global creditors and banks and the World Bank is still in the messy process of trying to change its paradigms. The USA will continue its divide-and-conquer strategies, making bi-lateral trade pacts and other deals to assist in Iraq reconstruction and reversing the return to warlordism in Afghanistan and opium poppy exports, which now comprise 50% of GDP. Awareness grows about how the neoliberal world trade paradigm increases the power and wealth of powerful countries and corporations. Regional integration strategies, including MERCOSUR, become more attractive for developing countries – including eventually, a common currency to increase Latin-American trade independent of US dollar, euro and sterling reserves.
A stronger MERCOSUR and Latin American integration could advance entrepreneurship and new businesses based on local currency loans and venture capital. This strategy could also enhance domestic business-to-business trade and help grow more robust, homegrown, consumer-driven economies based on total productivity of all factors (see Figure 3, Total Productive System of an Industrial Society). While world trade wars are likely to last for many years – regional, national and local trade can flourish under new agreements, policies and strategies. The September 2003, 2-day retreat at the Fundacao Dom Cabral (FDC) held by the Economic and Social Council and chaired by Minister Tarso Genro envisioned a bright future for Brasil in 2020 including continuing robust exports to the world.
Some 200 participants from business, labor and civil society developed scenarios around the shared goal of sustainable development. The “VISION BRASIL 2020” that was reported looks back from the year 2020 and views the achievements that produced this preferred future scenario:
We are a nation of 210 million people reigned by peace and wide access to work. In the last 16 years we have presented significant improvements in the income share, in the rich and poor gap, in balanced geographical occupation, in access to education, culture and health.
We are a nation without misery in which education is a priority. A country in which there is a high life expectancy, oriented by sustainable development.
We are a country which is able to develop widely accessible technologies.
We are a nation with more safety, more justice and with an increasing feeling of social responsibility.
Today, our human relations are based on the respect of the elderly and children; we have more time with our families, we are guided by confidence and ethics in our commitments. Equal opportunities are provided and we are recognized in the world by our culture of peace.
We are widely perceived in the global scenario as a country that has taken a leadership role in the Latin American continent, due to solidarity, full and sovereign international integration.
We are the biggest and better benchmarked in the world production of food, based on a sustainable agriculture that conciliates different forms of production organizations. There are no land conflicts. 20 to 30 million people live in “rural towns” producing with more added value.
We utilize our environment assets with preserving actions. Alternative energies are applied. Our cities are clean, non polliuted, with more green spaces accessble to the whole population.
Science & Technology research efforts interrelate the private and the public sectors. Small businesses have assured access to the most advanced technologies.
Our participatory and collaborative culture has favored innovation and competitiviness of our products, as well as a Brasilian management style that is internationally appreciated.
Every Brasilian is a citizen. The public interest prevails over the private interests. The State is controlled by society. The political representation is legitimate and the public administration is guided by morality and effectiveness.
The participants also articulated the goals and values behind the fundamentals of the vision:
- Education as a value – with priority in the government budget
- Commitment with a healthy, joyful and happy life
- Democracy and the national unity and peace
- Pride of being Brasilian – self-esteem
- Miscigenation and ability to live with differences, large ethnic and cultural diversity
- Creativity, flexibility and intelligence
- The national unity
- Entrepreneurship, cooperative and solidarity
- Assurance of opportunities, compromises and detachment
- The creation of favorable conditions for the effective participation of citizens
Also described were the challenges:
– Paradigm shifts in the economy
– Full employment policies – Political, agriculture, administrative, judicial, labor and tax reforms – Eradication of child and slave labor and illiteracy -Rational utilization of natural resources – Development of citizenship and fight against corruption – Development efforts concentrated in the government, private enterprise and NGO´s – Dissemination of good news to the whole society, by reducing the dark side of the media – Acceptance and assumption that Brasilians act with their hearts – Incentive to youth to embrace public missions – Incentive to micro and small business
Many of the necessary policies to create this prosperous, globally-competitive, educated, equitable, healthy Brasil – leading the world in international cooperation and peaceful sustainable development – require the paradigm shift now widely-acknowledged and discussed in Brasil. I expect Brasil will exert ever more influence in global affairs, including taking its place as a permanent member of an enlarged United Nations Security Council. As I have outlined (see my “New Opportunities for the United Nations, www.hazelhenderson.com, click on Editorials) the debacle in Iraq and the US need for UN allies now acknowledged by President Bush, will provide impetus for many UN reforms, including expanding the Security Council and ending the veto. Brasil, India and other new permanent members can help achieve more pragmatic and harmonious negotiations and outcomes. Issuing bonds, together with other financing mechanisms, including user fees for commercial exploitation of global commons, currency exchange taxes, etc. can reduce over reliance on the USA and membership dues. Brasil can help re-shape the WTO and limit its rule-making to trade in goods – with full-cost pricing and corrected GDP statistics. Separate agreements and regimes are needed for financial services, foreign direct and portfolio investment, currency-trading, intellectual property, patents, research and development and other global securities rule-making for a “global securities and exchange commission.” Indeed, such new global financial architecture has been discussed for over a decade by groups including IOSCO (the International Organization of Securities Commissions) and the OECD, whose ill-fated Multilateral Agreement on Investment was rightly defeated by global NGO opposition. Currency-trading is the most urgent target for global regulation. (over 90% of $1.5 trillion of daily trading is speculation). (See my Beyond Globalization, Editora Cultrix, Sao Paulo 2003.) There are several viable methods of regulating currency exchange, which do not require laborious international agreements to prevent such trading moving to offshore havens. This evasion has been made less likely by the OECD’s black-listing of such havens for money-laundering and illegal transfers to terrorist groups. The screen-based Foreign Exchange Transaction Reporting System (FXTRS) I designed with my partner, Alan F. Kay (founder of AutEx, the first computerized securities trading system, now owned by Thomson Financial) is also described in my Beyond Globalization (2003). Royalties from this fully transparent, best practices, patented currency exchange will be donated to the United Nations. This system is designed to protect currencies from speculative bear raids and employs a below 1% fee structure acceptable to currency traders since it creates better-regulated and informed trading conditions. Not surprisingly, China may be the first country eventually to launch its currency with such a “state-of-the-art” system. Meanwhile, the daily avalanche of currencies sloshing around the planet continues to destabilize national macroeconomic policy-making in even the most democratic and well-managed countries. Today’s currency markets are not efficient, but driven by psychology, rumors, herd-behavior and financial mass media from Reuters and Bloomberg to CNN, CNBC and Globo. In 21st century global warfare and markets, currencies are now the weapon of choice. The US dollar has lost over 25% of value against the euro (as I predicted over a year ago). The US dollar may fall further as it becomes less tenable for the US to continue being the “locomotive” of global GDP growth. The US is the world’s largest debtor and has flooded the world with paper dollars in exchange for the world’s goods. Continuing on this path will expand the US trade deficit from its current 5% of GDP to 6% and 7% — until the dollar adjusts downward. But this will make imported goods too expensive for US consumers to buy in past quantities. Thus, US Treasury Secretary John Snow’s pleas to Japan and China to allow their currencies to appreciate – an unlikely scenario. Today, the US dollar is no longer the world’s only reserve currency – being edged out by the euro (which now accounts for 35% of all global reserves and trade), with sterling and other hard currencies in the mix. This will eventually lead to a more stable, diversified “basket” of global reserve currencies, including the Japanese yen and China’s rmb – as well, I expect, as a MERCOSUR common currency. Now is the time to re-think the future of sustainable world trade – and trade within countries and regions. Some important principles of such a new world trading regime include:
· Adherence to all United Nations principles, treaties and conventions on human rights, labor standards and environmental protection, including the UN Global Compact on good corporate citizenship and accountability. · A well-regulated transparent, democratic global financial architecture, including reforming the international financial institutions. · Ending corruption. · Ending relocation practices based on tax giveaways and other forms of tax competition already illegal under WTO rules. · Calculating all traded goods and negotiations in full-cost prices. · Truly level playing fields on subsidies. · Correcting GDP per capita based economic growth measures as agreed in Rio de Janeiro in Agenda 21 (1992) – to include social, human and environmental assets and costs. · Correcting stock and bond markets’ evaluations of country risk ratings to include such broader statistics and similarly correcting their capital asset pricing models (CAPM).
As these corrections and emerging statistical paradigms and corporate accounting changes (i.e., “triple bottom line”, economic, social and environmental measures of corporate performance (see. www.gri.org) take over from today’s obsolete methodologies, world trading patterns will be steered gradually toward sustainability. Economic measures of “efficiency” will at last align with true physical efficiency, measured in thermodynamics. Today’s goods that are subsidized by: below full cost pricing, social costs born by taxpayers, environmental costs born by others or future generations and also by direct government subsidies and protectionism, will tend to disappear from international trade. Much of today’s trade is simply entropic, e.g., container loads of identical cars, crossing each other on the world’s oceans in energy-gulping planes and ships. Correct full-cost prices would reveal these goods as uncompetitive with those produced and consumed in domestic markets. Most basic goods are produced efficiently in most countries at lower costs while providing local employment. Exports and imports will be limited to unique goods and commodities, where each country offers true comparative (not competitive) advantage. Thus, the original world trade theories of Ricardo were based on such natural niches and comparative capabilities and advantages – essentially cooperative strategies. Today’s knee-jerk competition of “market fundamentalism” and global economic warfare between countries will tend to disappear. Goods, including agricultural commodities will tend to be traded regionally, domestically and locally – particularly perishable foods whose optimal nutritional value is in freshness. Some agricultural food products will remain in global trade – from grains, tea, coffee, soybeans, etc., as well as unique foods, such as Brasilian fruits and nuts. However, many countries will reserve the right to protect domestic food supplies on grounds of national security (to prevent TNCs from monopolizing supplies) or health (e.g., non GMO-foods, hormone-free meats, etc.) – accepting reciprocal measures of other trading partners. My views on agricultural products in world trade can be summarized by my experience with a major food multi-national in the early 1980s. This company asked me to do an evaluation for their product line (mostly based on corn) and their corporate strategy for the future. I agreed. My evaluation was almost totally negative. They were taking a highly nutritious crop, corn, and actually subtracting from its nutritional value with heavy processing into highly-advertised dried soups, and other packaged foods, syrups and even ethanol fuel additives. Their top heavy centralized US-based management of divisions in ninety countries impeded feedback on local knowledge, markets and culture, while their ethanol production was purely entropic – driven by tax subsidies. My verdict: shut the operations down and re-deploy the assets into more sustainable products of higher nutritional value, partnering with local producers while lowering costs of transport, packaging and advertising. The good news? The management still invited me to present my report to their conference with their ninety country managers in a two-hour discussion in roundtables. The two different paradigms: the company’s based on traditional market economics and trade strategies – mine on thermodynamics, human nutrition and new measures of corporate performance and macro-indicators of quality-of-life. Big companies can listen – but the bad news was that little change occurred. In a new sustainable world trade system, trade would gradually de-materialize from standardized, similar goods toward unique goods and raw materials, for example, the global anti-virus, software company Trend Micro, Inc. founded in Taiwan by entrepreneur Steve Chang. Trade in services would grow much larger under precisely-crafted agreements: on tech transfer, patents, science and technology and intellectual property, so as to rebalance power and knowledge between North and South. It is much more efficient to trade “recipes” than cakes and cookies, for example, the software of clean technologies and design – rather than the hardware and machines themselves. This emphasizes the importance of tech-transfer, license agreements, joint ventures geared toward building local content and skill levels. The Chinese are masters at creating these kinds of joint ventures with global companies: no tech-transfer, no deal! This is the best kind of foreign direct investment. Brasil can also drive equally tough bargains with investors and global corporations due to its huge domestic market and its immense wealth: social, cultural, human and ecological. As I have documented, using new indicators of sustainability and quality of life, per capita, Brasilians are amongst the richest people on Earth. World trade in good design, better ideas, cultural goods (such as Brasil’s music, art, literature, TV shows, dance, etc) will allow the human family to celebrate and savor our magnificent diversity. Local cuisines, fashions, style, architecture, urban design and other unique contributions of the “cultural DNA” of all nations enrich us all. Social innovations are the highest form of world enrichment, like democracy, great literature, agrarian reform (the foundation of China’s new prosperity), education policies (such as Brasil’s bolsa escola, now being copied elsewhere), urban planning, such as pioneered by Curitiba, Internet-linked civil society and the World Social Forum and most of all, cultures of peace. Such intangible exports are often of the highest added value enhancing national prestige. Today, countries recognize the value of such intangible, attractive, image building, e.g., “cool Britannia” and the USA’s image of “the American Way of Life” (now much discredited). Accountants are still learning how to value intangibles, brands, from Coca Cola to the World Wildlife panda, as well as knowledge and intellectual property, the key factors of production in our 21st Century information societies. For example, Britain has earned millions from exporting eccentricity (i.e., The Beatles, The Spice Girls, crazy fashions, etc.), while Holland’s unique comparative advantage has been its special knowledge of how to reclaim and defend land areas from the sea and floods. Brasil is already adept at these kinds of high-value intangible exports, which also augment the value of tourism. Some of the socially innovative policies, such as Participatory Budgets, pioneered by the city of Porto Alegre could be offered under license to other cities worldwide. Most importantly, how can we turn the millions excluded from today’s globalization into healthy educated productive citizens? By broadening our analyses and statistics and including the world’s unpaid, undocumented informal sectors, where people are self-employed, build their own homes, grow their own food in traditional livelihoods. In Brasil’s informal sectors lie untapped skills and entrepreneurship, such as the People’s Banking groups in Belem and many other citizen-based movements being documented in Brasilia by IPEA (Instituto de Pesquisa Economica Applicada). They know the huge potential of barter networks, both based in neighborhoods and wider electronic trading systems. World barter by transnational corporations and governments is over $1 trillion annually. Throughout history, there have always been two ways that humans transact: (1) pure exchange (barter) and sharing for mutual aid (2) using money (see Figure 4, Two Ways of Transacting). Any time money systems break down, people recreate barter and local scrip, or peoples money (see Figure 5, New York scrip). No poverty-reduction strategy can be successful without barter and full participation of productive, unpaid, informal sectors. They seek deeper dialogue with SEBRAE – whose members they admire and seek to emulate. They know much about the need for economic reform in Brasil – to reduce interest rates and create robust financial networks for local credit, micro finance and enterprises. The time is right for all these changes in Brasil’s new democracy. We all know that there are at least three better ways to check inflation than by inflicting high interest rates across the whole economy. First, bank reserve requirements can be raised as need, beyond the 8% mandated by the Bank for International Settlements. The Chinese have taken this course. Second, margin requirements on stock exchanges can be raised to reduce speculative borrowing to buy stocks and bonds. Third, a robust national network of credit unions such as in the USA can compete with commercial banks. Local depositors can deposit their paychecks in local credit unions to provide lending funds for local entrepreneurs. Local venture capital clubs can be connected in secure electronic networks with start-up companies. This will overcome the image of Brasil as a destination for hot money and speculators and make it more welcoming for investors such as myself. As the global economy grows into greater global interdependence, we can track the driving forces accelerating change (see Figure 6, Emerging Era of Global Interdependence). Technologically, we are moving in to the Age of Light (see Figure 7). Traditional macro-economic management is failing (see Figure 8, The Economic View) because interacts between all global players are increasing exponentially (see Figure 9, Systems View of Global Economy of Fast Feedbacks). Industrial sectors are restructuring (see Figure 10, Restructuring Industrial Societies). A new type of economy is emerging in many industrial societies (see Figure 11, The Tele-Economy). Development models are still in disarray. My own model sees development as the evolution of human societies’ understanding of three basic resources: matter, energy and information and the substitution patterns toward greater thermodynamic (not economic) efficiency (see Figure 12, Models of Resource Use). Thus, societies’ key resource is information and the extent to which its culture educates and nurtures its human and social capital, and applies its knowledge base to managing its material and energy resources. An example is the evolution of fossil-fuel technologies (based on advancing knowledge) since 1850 from solids and liquids to gases (see Figure 13, The Shape of Things to Come). The deeper transition to the solar age of renewable resources is still hampered by transnational corporations dominating energy systems, fossil fuels, nuclear power, high-tech weapons systems. Industrialization methods are still applied inappropriately to agribusiness and genetic engineering of living organisms, chemicals, pharmaceuticals, transportation and communications technologies, mass media and networks. Today’s forms of globalization have been designed by TNCs, with support of the government bodies – local, national, regional and international – over which TNCs exert major influences. As we explore the emerging global playing field (see Figure 14, Emerging Global Playing Field) we see many great opportunities for human development, greater shared global prosperity and enough good and necessary jobs to employ every able-bodied man and woman on our planet. Global polling, using the best scientific sampling, North, South, East and West confirms the emergence of the new superpower: global public opinion (see for example Environics International, London and Toronto, Canada). Poll after poll confirms that ordinary people in over 60 countries want more education, health, cleaner environments, access to credit, better technologies and opportunities. Too often, their governments buy weapons and lead them into wars (see Figure 15, What the World Wants). Rio de Janeiro hosted the formation of the Earth Council in 1992. After ten years of effort by NGOs worldwide, the Earth Charter (see Figure 16) was launched at the Peace Palace in The Hague, Netherlands. This Charter of 16 principles of human responsibilities – for each other, our families, our communities, our countries, all species and the planet’s living bioshpere has been hailed as the most important new soft law since the Universal Declaration of Human Rights (www.earthcharter.org). Towns and cities worldwide, as well as companies, including my partner, The Calvert Group has adopted the Earth Charter. Brasil is recognized worldwide as a culture that fosters such social innovations, including the concepts and operationalizing of sustainable development and new indicators to measure true prosperity and quality of life.
References (editions in Portuguese)
h. henderson, ALÉM da Globalização, Editora Cultrix, Sao Paulo (1999), Copyright da Introducao (2003) h.henderson, Construindo Um Mundo Onde Todos Ganhem, Editora Cultrix, Sao Paulo (1996) h. henderson, Transcendendo A Economia, Editora Cultrix, Sao Paulo (1991) HAZel Henderson, author of Beyond Globalization and other books is partner with the Calvert Group of socially responsible mutual funds in the USA in creating the Calvert-Henderson Quality of Life Indicators (updates at www.calvert-henderson.com). She co-edited The UN: Policy and Financing Alternatives, Elsevier, UK (1995) with Harlan Cleveland and Inge Kaul and serves on the editorial boards of many publications in the USA, Europe and Asia. Her columns are syndicated by InterPress Service (Rome, New York, Washington Montevideo) to 400 newspapers in 27 languages.
 PODER, Sept. 2003 Miami, USA, p. 63 and The Economist © 2003
 Business Week, Oct. 6, 2003, p. 40
 The Economist, Aug. 16, 2003, pp. 35-37.
 Business Week, Sept. 22, 2003, p. 68.
 My late friend Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (Harvard University Press 1971) grounded erroneous economic theories of “productivity” and “efficiency” in thermodynamics following British chemist, Frederick Soddy, who shared a Nobel Prize with E. Rutherford for the discovery of isotopes.