BRICS star rises with new WTO boss

By Musab Younis

Last week’s election of Robert Azevêdo, a Brazilian diplomat, to head the World Trade Organisation, has been widely interpreted as an event illustrative of the changing global balance of power. His election represents the first time someone from a BRICS country – and only the second time someone from the Global South – is installed in this powerful position. It took concerted lobbying from developing countries, including a united BRICS group, to thwart Herminio Blanco, the preferred candidate of the US and EU. The Financial Times immediately reported Azevêdo’s election as a “victory for Brazil’s brand of rainbow diplomacy and for the Brics”.

Brazil’s choice is a popular one amongst developing countries. As Shobhan Saxena points out in an illuminating blog for The Times of India:

“In 1997, as Brazil's representative at WTO, Azevêdo had challenged the US and EU over trade subsidies—and won. It's because of his credibility as someone who can protect fair trade (not just free trade) that the majority of WTO members voted for Azevêdo”.

China’s foreign ministry spokeswoman Hua Chunying quickly said that China "welcomes" the choice and the Xinhua news agency called his selection "something worth celebrating". China’s commerce ministry added that it hoped Azevêdo would "prioritise the patching up of differences between developed and developing members”.

Vijay Prashad, writing in The Hindu, called Azevêdo “a defender of the South”, adding: “The world pays a stiff price for the North’s monopoly over political and economic decisions. Global perestroika is needed.”

Azevêdo’s election does not mean the next round of WTO talks, scheduled to take place in Bali, is guaranteed to run smoothly. In fact, current signs suggest that it is improbable that Azevêdo will be able to heal major North-South divides on trade issues. But his election does demonstrate that the BRICS have been able to manoeuvre themselves into the leading position amongst developing countries. It’s now clear that the BRICS can gain broad and decisive support amongst African, Asian and Latin American countries for leadership bids in international organisations.

And we’ve also seen a demonstration of the specific popularity of Brazil, perhaps marking – as Saxena suggests in his blog – a victory for the famous diplomacy of the former President Luiz Inácio Lula da Silva. The news comes as a bonus, too, for the current administration of President Dilma Rousseff, showing that Brazil’s international status has not diminished.

"This is not just a victory for Brazil or a group of countries,” said Rousseff, on Azevêdo’s election, “but for the whole WTO."

The Washington Consensus and democracy

By Carlos Fortin

A recent Guardian article by Walden Bello, comparing the neoliberal policies of the Pinochet dictatorship in Chile with those of Margaret Thatcher in Britain, prompted a debate in the Recovery with a Human Face blog about the Washington Consensus, its policy thrust and its impact on the economies of the countries which adopted it.

Bello's article squarely linked the Washington Consensus with free market fundamentalism, a point contested by Duncan Campbell of the ILO (writing in personal capacity). For Campbell, the Consensus ‘was not doctrine, but became doctrinaire through its misuse in political channels.  The core of the consensus, however, was economic wisdom, time- and context-specific, and the effort …  was for the common good’. Here he echoes the disclaimers of the inventor of the term Washington Consensus, economist John Williamson. Williamson, in a piece written in 1999, inveighs against the fact that the term has become synonymous with market fundamentalism, which he claims it was never intended to be.1 

Janine Berg, also of the ILO, replied to Campbell’s comment to say that “the ‘Consensus’ was an ideological pursuit based on shaky theoretical grounds”.  She was supported by Robert Wade, with reference to New Zealand’s Big Bang liberalization of 1984. 2
 

Although I agree with Duncan Campbell and John Williamson that the Washington Consensus is not necessarily an endorsement of the most extreme forms of market fundamentalism, its core ideas include:

• privatisation
• deregulation
• liberalisation of imports and foreign direct investment inflows as well as of interest rates
• a minimal role for the State in the economy.

As all of these beliefs  undoubtedly reflect the essence of neoliberalism, I therefore ultimately side here with Bello, Berg and Wade.

Perhaps more importantly, I believe the Washington Consensus shares with market fundamentalism an anti-democratic bias. Economic decision making is defined as a technical exercise, in which trained experts identify the "right" solutions and implement them, preferably in isolation from public debate, for the good of all. The crucial insight of political economy –that policy interventions always result in winners and losers - is thus negated. As Joseph Stiglitz puts it, this approach " tried to pretend that there were not trade-offs—a single set of policies made everyone better off—while the essence of economics is choice, that there are alternatives, some of which benefit some groups (such as foreign capitalists) at the expense of others, some of which impose risks on some groups (such as workers) to the advantage of others." 3

The clearest example is the notion –which has gained currency on the back of the Washington Consensus- that the independence of central banks is crucial for ensuring good monetary policy. To quote Stiglitz again, "central banks make decisions that affect every aspect of society, including rates of economic growth and unemployment. Because there are trade-offs, these decisions can only be made as part of a political process"4. The Washington Consensus advocates' insistence that it is a purely technocratic issue, is essentially an expression of their "lack of confidence in democratic processes" 5.

1 John Williamson, “What Should the World Bank Think About the Washington Consensus”, Speeches and Papers, Peterson Institute for International Economics, July 1999. At: http://www.iie.com/publications/papers/paper.cfm?ResearchID=351
2 Bello's article and the subsequent exchange are available at http://www.freelists.org/post/recoveryhf/Neoliberalism-and-the-Global-South
3 Joseph E. Stiglitz, Making Globalization Work. The Next Steps to Global Justice, New York and London, W.W. Norton Allen and Company, 2006, p.xv
4 Joseph E. Stiglitz, "Big Lies about Central Banking", Project Syndicate, 3 June 2003, at http://www.project-syndicate.org/commentary/big-lies-about-central-banking
5 Stiglitz., Making Globalization Work, op.cit., p. 28

Lessons from Bangladesh: building a better boycott

By Noshua Watson

My IDS colleague, Naomi Hossain, has a recent blog about the apparel factory building collapse in Bangladesh and how it symbolises the utter failure of globalisation. Until now, proponents of globalisation have advocated establishing private systems of governance to oversee supply chain compliance in situations that are not easily monitored by national or local authorities. In the case of Rana Plaza, the complex’s owner has been arrested and will be tried for the collapse, which is alleged to be among other criminal activities. Companies like Walmart, Gap, Carrefour and Li & Fung recently met with governments and NGOs to negotiate a plan for future factory safety in Bangladesh. The question for them is what to do going forward in unethical, but less than criminal, circumstances.

One activist approach is to boycott companies. Boycotts vary in their effectiveness due to the amount of media attention they can attract, the extent to which they passionately engage consumers over the long-term, whether they are easy for consumers to understand and whether it is easy for consumers to participate. In the Rana Plaza situation, the goal of a boycott would actually be indirect, to put pressure on garment factory owners by attacking the reputations of the global brands that they supply.

One problem with attacking a brand’s reputation is that reputations are merit-based, on the quality of the product and its past performance. Disparaging a product’s reputation increases a brand’s compliance measures only to the extent that it changes consumer perceptions of product quality or lowers the price premium that a brand can earn for its product. That is fairly difficult in the case of mass-market apparel, where consumers are already distinctly aware of the quality-price trade-off they are making.

Another way to address the situation would be to attack a brand’s status, the non-merit-based, social perceptions that it is better than other brands. The way to damage a brand’s status is to break its relationships with high-status people, drive the brand down in important rankings or challenge brand associations that the brand has cultivated like being ‘cool’ or ‘family friendly’. Given the more intangible and unearned nature of status, this might be an easier route for boycotters to take.

Prior to the Rana Plaza collapse, many major global brands were already minimising their presence in Bangladesh, due to their inability to achieve the levels of supplier safety compliance they wanted. Unfortunately, their departure may have left behind brands with lower standards. For the sake of their industry, the brands that care may want to make it clear who belongs to their club and who doesn’t.

Beginning a green transformation: a development issue in Japan

By Tomoko Kunimitsu

On 10th March, ‘The 4th Revolution Summit’ was held in Japan. It was an event which aimed to accelerate the shift to renewable energy in Japan, held on the day before the 2-year anniversary of the disastrous earthquake and the ensuing accident at the Fukushima Daiichi Nuclear Power Plant. The name of the summit was inspired by a German film named The 4th Revolution – Energy Autonomy.

A number of activities to support this transformation in the energy system have been taking place in this country, both locally and nationally over these 2 years. On a local level, the film, which suggests that renewable energy is the sustainable energy source which could kick-start the ‘green’ revolution, has been shown in 35 out of 47 prefectures in Japan. Many of the screenings were held by voluntary citizens and NGOs. Also, more and more citizens have organised/participated in demonstrations to protest nuclear power in many parts of Japan. Japanese people are becoming to know that we are a part of the change for our future.

At the national level, the government introduced the new feed-in-tariff system in July 2012 in order to increase an incentive for setting power-generating facilities for renewable energy. Some private firms, such as Softbank, have already started focusing on this area to taking advantage of the potential opportunity. As a result, these various forms of interests in renewable energy – from citizens, firms, and the government – led to Japan’s increased capacity to produce renewable energy, adding 1,178 megawatts in just 9 months, from April to December last year.

On the other hand, the shift from nuclear power to renewable energy may be a challenge to the huge investment in the past. More than 50 nuclear power plants have been operating in Japan are a result of investments made since 1960s. The investors range from the government and large firms to ordinary citizens. Many rural areas which are home to these nuclear power plants rely hugely on the industry which has stimulated the regional economy by receiving subsidies and creating jobs.

In fact, when Japan stopped all the nuclear power plants after the meltdown in Fukushima, some people living in the very core area of one nuclear power plant in Fukui prefecture allowed its reopening as the regional economy needed plant-related jobs. One citizen said, “we had allowed ourselves to become addicted to nuclear money, until Fukushima broke the spell”. It was a very different reaction from the demonstration which took place to oppose the reopening. The government’s decisions also reflect this difficulty. While drawing up incentives for renewable energy, it also decided to review plans to abandon nuclear power, made by the previous administration. These contrasting events show not only how seriously the investment of the past affects the future even decades later, but also that we didn’t have alternative options that could reduce the dependency.

The green transformation seems to be more than a shift in energy system and a tool of economic growth – it is a development issue in Japan. Japan is struggling to find a direction to go. The current situation mentioned  has been described as ‘Japan’s “nuclear mafia” vs. a “communist” renewables policy’. The process of green transformation is challenging the established socio-economic structure and perhaps, unfairness behind that: who produces energy for whom? How should the rural economy be maintained? How can the whole Japanese society reduce the over-dependence on one big investment continuing from the past? In both top-down and bottom-up approaches to expand renewable energy, everyone should illustrate a broad image of development of this country – what we will pass on to the next generation.

Tomoko Kunimitsu is working towards her MA Globalisation and Development at the Institute of Development Studies.

Margaret Thatcher's lesson for the BRICS

By Noshua Watson

Margaret Thatcher’s legacy will always be judged by the consequences of economic liberalisation. In the FT, Erik Berglof, Chief Economist of the EBRD, discusses the consequences of liberalisation and privatisation in eastern Europe after 1991 which were influenced by Thatcher’s policies. He writes that Thatcher’s idea of using EU accession as encouragement for economic reform led to more balanced transition, higher growth and lower economic inequality in countries like Czech Republic and Slovakia. In countries like Ukraine and Russia, where EU accession was not an option, highly-inequal, elite-dominated economies emerged.

Berglof argues that Thatcher understood the link between political context and liberalisation policies, although that was not fully appreciated by those who followed her. He encourages India and China to continue moving away from directing the resource allocation and investments of private enterprises, while promoting good governance, competition and equality.

Thatcher’s lesson for the BRICS is that domestic policy and foreign policy go hand in hand. It is a tricky game for the BRICS to play both donor and recipient. As the BRICS consolidate as a bloc and expand their own regional influences, they need to focus on domestic growth and stability as well as growing their foreign aid budgets. Whilst maintaining macroeconomic growth, the BRICS still need to continue to reduce poverty by attracting skilled jobs, investment in infrastructure, better regulation and attracting FDI. The aim of separating the State from the private sector was to get the State out of the business of choosing ‘winners’ and ‘losers’. As Mrs Thatcher learned, the same principle holds when it comes to people.