Revolution in Business and Finance

Globalization, particularly of finance, has led to short-term hot money flows (currencies and portfolio investments) which have become the transmission belts of ecological and livelihood destruction, disruption of domestic, social/economic policies in all countries and exacerbation of poverty and social exclusion – sometimes affecting whole countries. Thus, socially-responsible investors and businesses still must operate on this dysfunctional money market platform, driven by unrealistic expectations of returns on investment, below full-cost prices and the herd behavior of market players. These financial flows affect the global sustainability agenda more than trade. They dwarf the less than 10% of global trade-related transactions in the $1.5-2 trillion total of daily currency exchange. It is the speculative 90% of these daily trillion dollar flows that are un-related to trade that proposals for currency exchange taxes (i.e., Tobin tax) seek to address. At the UN Social Summit in Geneva, June 2000, 160 governments agreed to perform feasibility studies on currency exchange taxes. The USA refused, even though then Treasury Secretary Lawrence Summers had argued for such a small (.01%) currency change tax in his paper “When Financial Markets Work Too Well: A Caution Case for A Financial Transactions Tax; journal of financial services, November 3, 1989. In my Beyond Globalization, I discuss the many other ways of collecting such taxes (including the Foreign Exchange Transaction Reporting System FXTRS^sm) as well as proposals to collect fees or fines on all uses or abuses of the global commons (CO₂ and other cross-border pollution, arms sales, etc.). Further information on currency exchange tax movements can be accessed at www.attac.org; www.tobintax.org; www.halifaxinitiative.org and www.waronwant.org/tobin.htm. The world must address these globalization issues and how to finance development through such innovative funding sources, as well as how to fund global public goods. They are all on the agenda of the UN Summit on Financing for Development, Monterrey, Mexico, March 2002. Estimates of revenues from even .01% currency exchange taxes range from $50billion to $300 billion annually. (I will serve as a delegate of the State of the World Forum and its new Commission on Globalization of which I am a member.) As a member of the Advisory Council to the Calvert Group, Inc. socially-responsible mutual funds, and Partner in the Calvert-Henderson Quality of Life Indicators (www.calvert-henderson.com), I have the honor of also working with the office of UN Secretary General Kofi Annan on the UN Global Compact and its nine principles of global corporate “good citizenship” in human rights, core labor standards and environmental stewardship. Equally important is the need to clearly define what is meant by “development” and “wealth” and “money” and even “finance” because we will need to redefine them in terms of global justice and ecological sustainability. We should redefine these terms in context of livelihoods, the unpaid, “Love Economy” (UNDP’s estimate: $16 trillion missing from global GDP); the informal, grassroots sectors (micro-enterprises, credit and venture equity) and the barter sectors (some $2 trillion globally on an annual basis, mostly government-to-government “counter-trade” or payments unions, TNC-trading and the balance consists of small businesses and people-to-people in livelihood economies). We must clarify the difference between money and wealth, as well as between per-capita averaged GDP-growth and progress toward equitable ecologically-sustainable human development. Beyond such context re-definition, specific proposals are needed to protect livelihoods, and enhance the informal grassroots sectors, micro-enterprises, and village cooperatives and facilitate local barter. Proposals are also needed to advance ethical markets, socially-responsible investing and consumption, full-cost prices, life-cycle costing and all the other ways of regulating, taxing, and taming today’s global financial casino. G-7 finance ministers and central bankers have called for a New Global Financial Architecture repeatedly since the Asian financial crises of 1997. Even after crises that followed in 1998 involving Russia and continuing with Brazil, Turkey and Argentina in 2001, official rhetoric has not been matched by results. After severe public criticism by such mainstream economists as Jeffrey Sachs, Joseph Stiglitz, as well as others worldwide, the IMF has taken some responsibility for its macroeconomic policy prescriptions, which exacerbated the 1997 crises in Thailand, Indonesia, Korea and other Asian countries. These orthodox “Washington Consensus” policies and their conditionalities requiring draconian cuts in social programs, further opening of these economies and the like, caused runs on their currencies and plunged millions into poverty. The performance of the Bretton Woods “twins” (IMF and the World Bank) has been no better regarding reducing or canceling the unrepayable debts of the HIPIC countries. Many of these debts are deemed “odious,” i.e., they were incurred in corrupt deals between politicians and their corporate and financial cronies – and should be repudiated. The rapid reduction of unrepayable debt is necessary – but not sufficient to build a basis for alternative, sustainable paths to development. It may be necessary for many indebted developing countries to seek bankruptcy protection. The most appropriate model is that of Chapter 9 of the US Bankruptcy Law, which covers municipal bankruptcies. Chapter 9 allows the continuation of all social programs, services and public expenditures and is therefore a way to protect the vulnerable and poor of a country seeking protection under this law. Also necessary, is the cessation of Structural Adjustment Programs, which have been cosmetically renamed as “Poverty Reduction” programs, with their many inappropriate conditionalities based on Washington Consensus orthodoxies. Both the IMF and the World Bank need to be re-directed, democratized and re-structured for more limited missions and made transparent and accountable to all countries – not only their rich shareholders. The IMF should desist from its dangerous fixations regarding opening up economies and their capital accounts before their financial sectors, public institutions, industries and civic societies are robust enough for global competition. Research shows that powerful countries benefit from globalization and competition while weak countries are further weakened (world affairs, Mihaly Simai, Delhi, Vol 5, #2, April-June 2001). The IMF’s various bailout packages have too often, in effect, bailed out private investors, while offering tempting targets for currency speculators. A new issue by the IMF of Special Drawing Rights (SDRs) would be preferable to assist countries in crisis. The World Bank should relinquish involvement in structural adjustment and in the financing of large infrastructure and energy projects. The Bank’s focus should change to direct funding of grassroots health, education and the needs of village microenterprises, cooperatives and sustaining local livelihoods. A new, global financial architecture must begin to acknowledge that the globalization of finance and technology along laissez faire market logic has created huge imbalances in power and wealth. To redress these imbalances, which were the result of international deregulation, privatization and trade policies – it will be necessary to create new global governance structures to steer and control these global markets. Financial bubbles are fueled by easy credit and the erosion of bank reserve requirements under the Bank for International Settlements (BIS). Instead of current moves to decrease bank reserve requirements, they should be increased. Manipulating interest rates as the main tool of monetary policy is ever more ineffective and unjustly impacts employment and increases poverty. In my Beyond Globalization (1999) are details of the many useful proposals currently debated, including the need to re-establish public control over processing payments in different currencies so that all countries could use their own currencies for international transactions. This would enable an international reserve asset based on a basket of currencies – rather than today’s unsustainable reliance on the US dollar. International treaties, agreement, and protocols on human rights, democracy, transparency, workplace standards and consumer and environmental protection will need strengthening. Beyond international regulation and democratization of global finance, markets and trade – new institutions are needed. These include a World Environment Organization to balance the narrow focus of the WTO; the International Bank for Environmental Settlements (UNDP Paper 10, 1997) to manage the disputes and inequities arising from global climate change and a “Global Securities and Exchange Commission” to police financial markets and stock exchanges. New “best practices” currency trading systems (such as FXTRS), which allow collection of fees on all trades, provide transparency and oversight to check tax evasion, capital flight, money laundering and speculation. Progress was made on blacklisting offshore havens by the G-7 and the OECD until the US Bush Administration backed away from this successful effort to informally sanction money-laundering and tax evasion in early 2001. Bush reversed his position after September 11^th in order to freeze the assets of Al Qaeda. Beyond such regulatory functions, user fees and taxes collected by such systems, there are other innovative proposals, including taxes on CO₂, cross-border pollution, fines for toxic dumping and other abuses of the global commons, arms sales, taxes on airline tickets or aircraft fuels, advertising and peace-keeping insurance to reduce reliance on costly military approaches to security. All these proposals were brought to the UN Summit on Social Development in Copenhagen, 1995, in the Report of the Global Commission to Fund the United Nations, co-editors, Harlan Cleveland, Hazel Henderson and Inge Kaul, The UN: Policy and Financing Alternatives, US edition, 1996.Most of these innovative sources of revenues from global commercial activities will be debated at the UN Summit on Financing for Development in Mexico, March 2002. Just as national governments have funded public goods (infrastructure, municipal services, education, health and defense) through taxation – the principles of progressive taxation are seen as supplying global public goods. These include, education, health, infrastructure, global non-commercial, public-access TV networks (such as WETV, a Canadian-European initiative) and below-cost internet access, worker, consumer and human rights protection, environmental monitoring and conservation of ecosystems, species, biodiversity and international peace-keeping insurance (see for example, I. Kaul, Global Public Goods, 1999). The hegemonic role of the still-overvalued US dollar as a de facto global reserve currency is creating serious imbalances and threatens other currencies tied to it, for example the Argentine peso. The USA in the 1990s has been a magnet for the world’s flight capital and remains so in spite of the bursting of the “new economy” bubble. A more stable global currency regime is essential to curbing today’s turbulence. A Bretton Woods type system of fixed exchange rates would be unworkable today. The ad hoc approaches since the USA unilaterally withdrew from the gold-backed Bretton Woods system in 1971 (i.e., free floating or pegging currencies to the US dollar, currency boards, and dollarization) have also proved highly unstable and crises-prone. Thus, only a re-constructed global financial architecture can address the need to regulate global capital markets – together with a new approach to a global reserve currency, perhaps a dollar-euro-yen parity regime, buttressed by SDR issues as needed. I have advocated that developing countries trade some of their US dollars for euros so as to relieve over-reliance on the US dollar, which is still about 10% overvalued and hurting even US exporters.

Global Governance of trans-national corporations (TNCs) is essential for the broader global agenda of democratizing equitable, ecologically-sustainable development and poverty eradication. Current approaches: international treaties on human rights, labor standards and environmental protection; as well as such principles as the OECD’s 1972 “Polluter Pays Principle,” the Precautionary Principle and that of subsidiarity must be extended and augmented. Full cost prices and life-cycle costing are endorsed widely – but still far from implementation. This is due to business-friendly politicians and the power of TNCs to lobby and fight legal battles to continue externalizing social and environmental costs from corporate balance sheets. A new wave of legal actions against irresponsible TNCs seeks to hold parent companies liable for negative impacts on society and the environment under the legal doctrine of Foreign Direct Liability (The Royal Institute of International Affairs Briefing Paper #18, Feb, 2001, U.K.) A multi-pronged effort at containing and re-directing the productive and destructive powers of TNCs include:

Changing the charters of TNCs from their legal requirement to maximize shareholders’ returns on their investments to reflect the interests of all stakeholders: employees, suppliers, consumers, host-communities, society at large, governments and the environment. Many TNCs are chartered in nations, principalities or provincial-level states (as in the USA) that compete to offer TNCs the most lax charters with the fewest requirements for auditing, transparency and even protection of shareholders. A global Multilateral Agreement on Investors and Corporate Responsibility (MAICR) for such chartering and protocols is needed, rooted in international law to circumscribe the powers of global TNCs. Meanwhile, there are opportunities for any state to offer “best practices” corporate charters with enhanced public accountability to any corporation wishing to position itself as a superior global corporate citizen to enhance its global brand. Costa Rica, for example, a benchmark country of “best practices,” could enhance its image further by offering such superior corporate chartering to attract socially-responsible investors and corporations.

International accounting standards must be expanded along the lines of the Global Reporting Initiative (GRI) which promotes “triple bottom line” accounting and corporate annual reports: (i.e., economic, social and environmental accounting). Progress is being made by the movements of socially-responsible investors, which in the USA alone hold $2.1 trillion of the shares of companies that “pass” such triple-bottom line accounting. These movements, now in many OECD countries, are linked with consumers, labor unions, environmentalists, anti-corporate whistle-blowers and indigenous peoples. These links are in order to verify their social research and thereby avoid investing in companies that manufacture weapons, mistreat their employees, destroy the environment or exploit indigenous peoples and their resources. Calvert’s CALVIN Index covers 600 socially responsible companies and drives the Vanguard Calvert Index Fund.

Positive “screening” favors solar and renewable energy companies, those in recycling, zero emission technologies, re-manufacturing, fuel cells, etc. Such efforts are changing the way many TNCs do business. Pressure from such investors, many of whom are politically active in such broader coalitions is felt at company annual meetings and can hurt their precious global brands. The global networks of anti-corporate activists since Seattle in 1999 are getting their often-sensible reform agendas past commercial media gatekeepers. For example, sensible opposition to the patenting of life forms is leading to a reexamination of Trade Related Intellectual Property (TRIPs) under the WTO. Instead of patents and copyrights on mere discoveries (which are not inventions), NGOs advocate “copyleft” laws borrowed from the computer “Open Source” movement – which specifies such discoveries of life forms as remaining in the public domain.

The United Nations Global Compact launched by Kofi Annan in 1999 at the World Economic Forum in Davos invites TNCs to engage with its 9 principles of good corporate citizenship in human rights, labor standards and environmental protection, but is voluntary and lacks compliance or performance criteria. Initial criticism by anti-corporate NGOs coalesced in the “Campaign for a Corporate-free UN,” rightly fearful that the U.N. might lose credibility. However, the UN Global Compact signatory companies are receiving additional scrutiny by NGOs and importantly by socially-responsible asset management firms, notably the US-based Calvert Group, which is donating its social and environmental auditing expertise to the UN Global Compact.

Thus all voluntary codes of conduct, principles promulgated by TNCs, the UN Global Compact and various industry trade associations do serve the useful purpose of making companies legally liable for breaches of their vows of such “corporate citizenship.” However labor unions rightly hold that “corporate citizenship” is more of a public relations slogan than a legal reality – unions prefer to promote “corporate accountability.”

Mass media play a distinct role in current promotion of TNC agendas, commercial market ideologies, and unsustainable over-consumption. Today we live in “mediocracies” rather than democracies. A handful of white male Northern media barons dominate global television, movies, radio, newspapers, book publishing, videogames and increasingly the Internet. These media TNCs serve the global marketplace. So far, they resist any notion of social responsibility for advertising, over-consumption, violent, degrading content or their “monoculture” domination of cultural and lifestyle diversity. These irresponsible corporations take refuge from critics behind principles of freedom of the press. This is why it is now imperative to finance public-access, non-commercial, media at all levels from global to local. Such public goods should receive high priority in funding, whether from tax revenues, currency exchange fees, taxes on advertising or stricter auctions of licenses to use public airwaves in the global electro-magnetic spectrum. One proposal, the Truth In Advertising Assurance Set-Aside (TIAASA) discussed in the UNDP Human Development Report, 1998, would set aside a percentage of current subsidies to US advertising to fund “counter-ads” by civic groups to keep companies’ ads honest.

National governments can play a vital part in cooperatively creating these global governance mechanisms to circumscribe TNCs and global financial markets. Most of the international taxes and innovative funding to be discussed at the US Summit on Financing for Development will be collected by national governments. These revenues can offset capital flight, tax evasion, bolster nations’ currency-stabilization funds, as well as funding ODA and selective international agencies for humanitarian purposes or development. National governments must reclaim public trust of their citizens. First, they must clean up electoral and political corruption and enhance their own transparency and democratic processes – rather than continue in their unholy alliance with TNCs. Advanced public-interest polling methods can locate consensus on policy proposals – by going over the heads of lobbyists and insiders. Results of such random sampling of all adults – rapidly released to mass media can short-circuit special interests (A.F. Kay, Locating Consensus for Democracy: A 10-year US Experiment, 1998).National governments must also reverse all their perverse subsidies to unsustainable corporations and sectors, estimated at some $800 billion-$1 trillion annually worldwide. Removing such subsidies would save more than the $650 million annually estimated in Agenda 21 as the cost to shift societies toward sustainability. These subsidies can be shifted to renewable energy, clean, organic agriculture, public transport, environmental enhancement, and protection of livelihoods, local enterprises and biodiversity. National tax codes must be shifted to waste, pollution, planned obsolescence and virgin resource extraction – to jumpstart recycling, re-use, re-manufacturing and barter sectors. Revenue-neutrality requires a concomitant reduction in taxes on incomes and payrolls. Nations will need to implement their Agenda 21 commitments to overhaul their national accounts, GNP/GDP to fully account for unpaid work, the value of human and social capital as well as environmental resources – while deducting social and environmental costs. There are many models of such broader national accounts, including those based on Herman Daly’s Index of Sustainable Economic Welfare (ISEW). Beyond national accounting lie many non-monetary values, culture, human rights, biodiversity (the replacement costs of which are incalculable by economic methods) and cultural diversity. These require using multi-disciplinary systems approaches such as the Calvert-Henderson Quality of Life Indicators (www.calvert-henderson.com) with its various appropriate metrics, rather than exclusively monetary and macroeconomic measures. Global finance and TNC-dominated markets are operated on the logic of global competition and self-maximizing behavior of all actors – now including nation-states. Thus, we live in a regime tending toward global economic warfare. Cooperation must balance competition in all natural and living systems if social and ecological sustainability is to be achieved. Human societies and their economies are living systems and their various use of market mechanisms derive from their diverse “cultural DNA codes (i.e., their goals, values and cultures). The competitive Westphalian nation state system also must now be transformed through the strengthening of cooperative global governance structures and the pooling of national sovereignty for the new era of global interdependence, which globalization has accelerated. The events and aftermath of September 11, 2001 illustrate the need to go beyond traditional military approaches and irrelevant projects such as the US missile defense promoted by high-tech military contractors – all of which are inappropriate to address global terrorism. Thus global peacekeeping is the most urgent requirement for sustainable human development. Taxing arms trading and reducing national military budgets (mostly in the USA) is vital, as is shifting weapons budgets to diplomacy and increased funding for the UN. Military approaches can be replaced by insurance, as for example, in the proposal for a United Nations Security Insurance Agency (UNSIA) a public-private, civic partnership between a reformed UN Security Council, the insurance industry and the hundreds of civic humanitarian organizations in conflict-resolution and peace-building. Any nation wanting to cut its military budget could apply to UNSIA for a peace-keeping “insurance policy.” The insurance industry would supply the political risk assessors and write the policies. The “premiums” would be pooled to fund properly trained peace-keepers and rapid-deployment of the existing networks of civic and humanitarian groups. The UNSIA proposal is backed by several Nobel Peace Prize winners and is taught in many university courses. (See The UN: Policy and Financing Alternatives, futures, Elsevier Scientific, UK, March, 1995) Redeploying military budgets and providing alternative security structures are the sina qua non and bedrock of sustainable development. Today it is necessary to address all these issues of restructuring global financial systems if we are to identify the innovative funding required for global public goods and sustainable human development.

****

Hazel Henderson, a native of Bristol, UK, is a global futurist, evolutionary economist and author of Beyond Globalization: Shaping a Sustainable Global Economy (1999) and seven other books on sustainable development. She serves on the editorial boards of FUTURES, (Elsevier, UK), FORESIGHT, Cambridge, UK and RESURGENCE, Devon, UK. Her editorials are syndicated by InterPress Service (Rome) to 400 newspapers in 27 languages. She is fellow of the World Business Academy and the World Futures Studies Federation, and advisor to the Calvert Social Investment Fund (Washington, DC) with whom she is co-creating the Calvert-Henderson Quality-of-Life Indicators. She held the Horace Albright Chair at the University of California, Berkeley, and has served on Committees of the National Academy of Engineering, the National Science Foundation, and the US Office of Technology Assessment.