by Parag Khanna
The man tasked with bringing corporate ambitions and global ethics into harmony is John Ruggie, the UN’s special representative on business and human rights. A mild-mannered Canadian, Ruggie takes a psychological approach to explaining the corporate citizenship life cycle: “First, they ignore the problem. Then they deny it. Eventually they pretend they’re doing something about it, and finally they comply. Ultimately, they do get there.” Shuttling between Harvard’s John F. Kennedy School of Government and the United Nations, Ruggie has become a middleman among dot-gov, dot-com, and dot-org, hearing NGO demands for corporate accountability, developing countries’ pleas for fairer deals, and heeding companies’ warnings to respect the narrow limits of international law. It’s one of the most delicate assignments in diplomacy: Overreach with expansive norms and companies walk away; let companies off the hook and they walk away with all the booty. “It’s the most complex game I’ve ever played,” he says.
None of this would be necessary if governments respected their own laws and international obligations—but that world is a long way off. In the meantime, more and more companies—both local and global—are moving beyond the trite Hippocratic Oath to “do no harm.” Ruggie’s efforts to construct “soft law” is therefore the real stuff of global governance today: not just grand declarations of principles but also audits, information disclosures, community petition channels, human rights impact assessments, and social reporting. There is no universal international law regulating corporate behavior, and certainly not in war zones, but such innovations fill the gap—perhaps permanently. A corporate superego is an essential part of a global superego.
*According to the Legatum Prosperity Index, smart countries promote government efficiency, make starting businesses quick and cheap, expand education at all levels, invest in innovation, steadily open their economies, improve public health, and guarantee political and social rights. Australia, Austria, Finland, Germany, and Singapore are at the top of the list, while the Central African Republic, Mali, Zambia, and Yemen round out the bottom.
Chapter Nine
The Case Against Poverty
Poverty is the greatest of evils and the worst of crimes.
—GEORGE BERNARD SHAW,
Major Barbara
Don’t patronize the poor. They are not dumb, and most of them work harder than we do.
—BILL CLINTON
It’s the best of times and the worst of times. The world has never been so rich, but has also never been so poor. Population growth, financial crises, and political instability all but guarantee that the world will continue to have perhaps two billion or more extremely poor people for decades to come, with many societies suffering from the vicious circle of poor health, minimal disposable income, and economic unrest. For the “bottom billion” there has been very little change between the first and second Middle Ages. Whether you view the world’s poorest as a security hazard, a moral blight, or a vast marketplace, they are a permanent feature of the global agenda and a standing test for whether human civilization has any meaningful solidarity.
Global goals and statistics—and even money—often matter little in states with extreme poverty, which is why we should focus on their citizens’ basic needs: food and water, health care, shelter, and education. Designing systems to meet the needs of these societies isn’t about revising the existing architecture but rather building a new one altogether, one focused on empowerment at the community level first and foremost. Forget stale debates about “trade versus aid.” What countries want is “aid for trade”: assistance that directly helps them ramp up their own exports. And forget nation building: Community building is nation building done right. In millions of small communities worldwide, micro-credit operations, new donors, diasporas, and social entrepreneurs are treating the causes, not just the symptoms, of social problems better than most of the world’s governments put together. They also prove the axiom that the best global governance is local governance. The global village would mean more if it helped these individual villages.
Show Me the Money
In 2008, twenty-five years of poverty-reduction efforts were wiped away through food and fuel price spikes. Riots broke out in Egypt, Indonesia, Myanmar, Nigeria, and Haiti. Now close to two billion people live below the World Bank’s $1.25-a-day poverty line. The number of hungry people also increased by forty million in 2008, bringing the estimated total number of people—especially women and children—suffering from malnutrition to about one billion. The poorest have also been perversely slammed by financial tsunamis: collapsing banks in New York mean shrinking credit for exporters in Mexico and Africa. Just as grain prices were going up, garment workers in Uzbekistan were laid off, remittances dropped from Pakistan to the Philippines, and falling copper prices led to thousands being fired from Zambian mines. When revenue is tight, social spending is always the first to get cut. The global economy slowed so precipitously in 2008 that millions of Chinese factory workers were laid off and wandered home to rural villages. One migrant returning from Shanghai wrote, “It was a leap from post- to pre-modernism, from the 21st century back into the medieval world.”1
Statistics actually matter little amid such volatility. As Mark Twain said, “There are three kinds of lies: lies, damn lies, and statistics.” Touting economic growth percentages, for example, without taking into account population growth and resource consumption, makes a mockery of any meaning numbers might have. Trickle-down economics doesn’t work in third world–sized populations. Ethiopia has eighty-five million people today but is growing by almost two million per year. Many Arab and African states have little idea how to manage populations that are so much larger than only several decades ago, so they barely even try. The only sure thing about the future of the developing world is that it will contain about one billion more people thirty years from now. As famed Indian journalist Khushwant Singh once wrote, “As we multiply, so do our problems.”
Pretending the world should be equal—or even can be equal—harms development. Such is the state of global disparity that while more than one billion people go hungry, another billion now suffer from obesity and other lifestyle diseases. Chanting about “global poverty” is useful as a moral outcry, but doing something about it is not as simple as pointing out that the assets of the world’s top three billionaires—just three people—are greater than the world’s poorest six hundred million people. Thomas Pogge of Yale University makes a moral case that even though sins cannot be inherited from our forefathers, the fruits need not be enjoyed so unevenly. And yet they always will be. The G-20’s collective $2.3 trillion in stimulus packages in 2008–9 didn’t even include $50 billion to help cushion the poorest.
So let’s stop talking about inequality as if making the rich poorer would actually make the poor richer. We will always have disparity, but we need not always have such vast poverty. In fact, rather than even talk about poverty, we should focus on need. Poverty is amorphous and sounds incurable, but needs are specific: food, water, shelter, medical care, and education. There are an estimated one billion urban squatters, twenty-seven million slaves, and two billion small farmers; the only question we should be asking is this: Who needs what to survive without excessive dependence on others? Extending opportunity—not sexed-up campaigns to “make poverty history”—is the right and realistic way to improve lives.
In the 1970s and ’80s, aid agencies focused on basic needs and contributed to marked economic and social progress in Latin America and Southeast Asia. But since that time they have become largely ossified bureaucracies. Their stale laundry list of unmet goals—boosting aid to 0.7 percent of rich-country GDP (five times more than the United States currently gives), rooting out corruption, building social safety nets, creating a global free/fair trade regime—is a near carbon copy of the World Bank’s 1965 strategy document. The more political and less functional these bodies have become, the more they produce lowest-common-denominator rallying cries, such as the Millennium Development Goals (MDGs)
, which have already been nicknamed the “Most Distracting Gimmick.” The poor cannot eat reports.
One thing no underdeveloped country needs is more official aid programs—at least not the way they are currently designed. Uganda had more that 1,050 aid programs between 2003 and 2006, and tiny Eritrea has twenty-one official and multilateral donors. In Ghana, there are seventeen major donors operating in the health sector, with the government reporting to each of them. The United Nations provides just 2 percent of the aid Vietnam receives yet has eleven active agencies there. Thirty-eight individual countries each host at least twenty-five or more active donors.
It’s enough to make one’s head spin and enough paperwork to keep government officials chained to desks rather than doing their jobs. The 230 official aid agencies in the world are actually greater in number than the total number of countries in the world—both donors and recipients—combined. And while the number of donors is growing, the size of the projects is shrinking—but, of course, overhead costs rarely get cut. No wonder most Africans view aid as a cow to be milked—but not by them. As American comedian David Letterman joked, you know you work for an international aid agency if “you tell yourself it’s not failure if you turn it into a lessons-learned document.” The poverty trap is also an aid trap.*
Rather than flocking to the flavor-of-the-month program—girls’ education or postconflict reconstruction, for example—and then claiming to suffer from “responsibility fatigue,” the UN Development Program and other agencies should learn to do just one thing well. It’s widely known that low inflation, sound financial markets, a stable foreign exchange, openness to trade, a solid rule of law, adequate public services, modern infrastructure, a robust tax base, and protection of minorities are good for development, growth, and stability—no country needs the World Bank to tell them that. Entrenched bureaucrats holding tight to tax-free salaries should instead be sent out into the field—armed with a shovel. In particular, World Bank economists who hail from the third world should return home and work in the governments they have spent years paternalistically advising from afar, start businesses that will attract foreign investment, pay taxes to their home countries, and crusade for accountability from within.
In other words, they should be measured by their promotion of human will: How many factories did they help start? How many jobs did they create? How many doctors did they train? So often aid bureaucrats talk about the need for a new “Marshall Plan” for Africa or other poor regions, but the Marshall Plan was decentralized and implemented at the provincial level. Why should we pour money into such centralized and inefficient funds when we can support these causes directly? Do we really need an “African Solidarity Fund” to help Africa?
Rather than contributing to the glut of funds that don’t take necessary risks on the poor, a better plan is to constantly run experiments at the local level and scale up only what works. This is, of course, what entrepreneurs do. The Philippines, South Africa, and other countries have become the world’s liveliest laboratories for the interplay of remittances, micro-credit, FDI, bilateral donors, and new public-private partnerships—with results tracked and measured on websites such as AidData.org. Stories of success inspire replication and scale. Small models that work are far more useful than failed big ones. In Nepal, the Asian Development Bank runs a performance-based grant system: Local constituencies that spend money wisely get more as a reward. Members of the public are informed about which districts are getting what resources, so they have started to lobby hard for better local governance. This is a good model for better global governance as well.
Caring for Orphans
There are certainly countries in the world—dozens of them—where aid still makes the difference between life and death. They don’t show up in emerging markets investment funds, so few people can name their currencies. No donor agency official wants to devote his or her career to unsexy countries such as Burkina Faso, Central African Republic, Gambia, or the Republic of the Congo (Brazzaville). Often they don’t even live there, but shuttle in and out from Paris. Tuvalu, East Timor, Haiti, São Tomé and Príncipe, Kiribati, the Solomon Islands, Liberia, and Sierra Leone are yet more countries who seemingly have no choice but to live off international life support.
These are the orphans of international relations, places where aid makes up at least half the annual national budget; most of their citizens earn less than $500 per year. For orphan states, diplomatic paternalism is a like-it-or-not scenario; they are micro-trusteeships of the international community, with their budgets, spending, and even political system managed as much from the outside as from within. Imposing any political conditionality on orphan states would be a kiss of death, since revoking aid would mean the immediate collapse of what little economic and social order exists. It would mean bureaucratic genocide.
Given that there are so many orphan states in the world—and people orphaned by natural disasters, geography, or nonexistent infrastructure—the World Bank and most UN agencies should make it their singular focus to adopt the world’s orphan countries and help them stimulate domestic and foreign investment so that they can one day stand on their own feet. This means most of all supporting infrastructure investments (roads, hospitals, irrigation, sanitation, electricity) with loan guarantees and supporting medium-sized enterprises. Building capacity has to mean more than neat org charts in capital cities. Public-private partnerships are the only way to save even the most forsaken societies.
Capital used to be a coward: Companies were interested in infrastructure investment only if it was a safe thirty-year bet. But in today’s competitive global market, if corporations don’t take risks in far-off places, they may not be in business in thirty years. Former Afghan finance minister Ashraf Ghani likes to say, “The difference between rich and poor countries is not money but mechanisms.” Reinsurance is perhaps the most important of these because it lowers the price of risk. Private reinsurers such as AIG, Swiss Re, Lloyd’s of London, and Axe determine the cost of entering a foreign market—and the cost went up substantially in the years after 9/11.
Two special agencies of the World Bank Group can bring that cost down, encouraging investors to enter the adoption market for orphan states. The Multilateral Investment Guarantee Agency (MIGA) offers political risk insurance, credit guarantees, catastrophe bonds, and first-loss protection to investors, helping overcome first-mover fears and liquidity shortfalls. MIGA’s American counterpart, the Overseas Private Investment Company (OPIC), also helps generate foreign investment for the places that need it most. In Zambia, OPIC helps small banks provide mortgages so that locals can purchase land and build homes. Swiss Re and the World Bank together now offer low-cost catastrophe insurance to poor, hurricane-prone countries in Central America, transferring risks to capital markets while delivering support at prices that don’t break the budget. The International Finance Corporation (IFC), whose explicit mission is to partner with corporations to invest in infrastructure, already has an excellent track record in out-of-reach and often dangerous places. In 2006, the IFC sponsored Irupana, a small Bolivian organic food maker, to send three Bolivian women—along with a dozen others from Afghanistan, Gambia, Sierra Leone, Mali, and Cameroon—to Barefoot College in the Indian state of Rajasthan to learn how to assemble, install, and repair solar power units in a manner simple enough for middle-age village women to understand. From that one visit to India, one thousand households across the participating countries launched themselves into the solar power age. In 2009, the IFC partnered with Citigroup to offer $1.25 billion in trade financing to poor countries trying to keep factories open and increased its annual lending to agribusiness companies to more than $2 billion to combat hunger.
African farmers often walk twenty-five miles to the nearest village. They cannot go and “get” development; it has to be tailored for them. In the small communities of orphan states, traditional aid packages are often too large to even be absorbed. In such places, assets aren’t measured in do
llars, but can be a pile of wood, a cow, a garden, a fish pond, or a bicycle. For farmers on tiny plots of land, a pig is one of the highest interest-bearing assets since it takes up little space and thrives on scraps, and an average sow can give birth to sixteen piglets a year. That’s why Heifer International, a charity based in Little Rock, Arkansas, calls its animals “living savings accounts” and raises and donates them around the world. Trickle Up, a foundation that has worked in more than one hundred countries over the past thirty years, focuses only on the rural destitute, providing them with grants to build skills such as fixing shoes, sewing, or raising goats. Almost all of the private donations Trickle Up receives go straight to villagers in Mali, Burkina Faso, Ethiopia, Uganda, Nepal, Guatemala, and Nicaragua. Just $100 can turn a collective of twenty to twenty-five women into a credit union of their own for their village, a phenomenon reinforced by CARE and the Gates Foundation, which is piloting community-based and child-focused savings accounts in a dozen similar countries.
The key is to focus on the resources at hand, start small, and spread good practices widely. In Ethiopia, dairy and other farming cooperatives are ideally suited to the micro-structure of tribal society. Unions of coffee cooperatives have come together to export hundreds of tons of coffee annually to the United States and Europe with the support of certification by the Fairtrade Labeling Association. Because these cooperatives are locally owned and run, they not only help build business and management skills but are also small enough to be scaled, restructured, and redirected as the economy demands. In this way, more Africans could grow rather than import fruit, bottle their own water rather than buy it, and set up their own diaper factories and start exporting worldwide.
